NUA Follow up scenario
Client retires on April 1, 2021 at age 57 and takes a partial distribution from Pre Tax portion of 401k payable to himself for living expenses in 2021.
In January 2022 plans to do same(some to himself) and rollover remainder of plan to a Trad IRA. If his company stock appreciates in 2021 which he feels it will hence this strategy. Can this client take advantage of NUA in 2022 ? He is under the impression he can as long as plan is fully distributed by year end 2022 but I didn’t know if this year’s partial distribution would prevent him from utilizing in 2022. I feel I read somewhere a partial distribution in a prior year may prevent NUA from being considered.
Permalink Submitted by Alan - IRA critic on Wed, 2021-03-10 13:51
You are correct. The 2021 distribution would be an intervening distribution that would disqualify his 2022 LSD for NUA purposes, unless the plan allows him to tap plan earnings or vested matching contributions while still employed and he is able to take the 2021 distribution prior to his separation from service date. That leaves only 3 weeks. Otherwise he would have to wait for the age 59.5 new triggering event and would have to delay the LSD until that year.