Taxes on NUA Distribution
Trying to get an estimate on the tax implications of of a client taking a partial NUA distribution before the end of the year. I am wondering what taxes that distribution will be subject to. Obviously Federal and State (OH), but wondering if it will be subject to local taxes and FICA tax?
Permalink Submitted by Alan - IRA critic on Thu, 2020-08-20 03:49
For the distribution to be taxed as NUA it must be part of a lump sum distribution of the entire plan balance plus the balance of any similar plans of the employer by the end of 2020. If this requirement is met and the balance of the plan is rolled over, client will only be taxed on the NUA cost basis as determined by plan accounting. There is no withholding since no cash is being distributed, but the 1099R will indicate in Box 2a the taxable amount which will be subject to ordinary income tax and possibly the 10% penalty unless certain requirements are met such as age 55 separation from service. There is no FICA tax on this distribution and rarely any local tax.