In-service Distribution and NUA
Hello-
I have seen posts on the interplay of the NUA strategy and doing in-service distribution of after-tax contributions/earnings. Does doing a rollover of after-tax contributions and conversion of after-tax earnings to a Roth limit the ability of using the NUA strategy in the future (10+ years)?
Thank you!
Permalink Submitted by Alan - IRA critic on Thu, 2020-09-10 21:33
No, it does not limit NUA use for an eventual LSD of the entire remaining balance, however the after tax balance will have been decreased by prior Roth rollovers, so the taxable cost basis for the employer stock will be higher. However, generally getting the after tax balance into a Roth IRA will be beneficial compared to using that balance just to reduce the taxable cost basis for the employer shares. But if the marginal rate is quite high in the LSD year, particularly compared to later years, use of the after tax amount to reduce the taxable cost basis could erase the Roth conversion benefit.