NUA
401k participant has appreciated company stock
Separated from service in 2021
He took (in 2021) a distribution of dividends (from employer stock)- However, I an not clear whether he took the distributions while employer or after severing service.
My understanding is (one of the many NUA requirements) is to make lump sump distribution in the a single year. Does him taking a distribution (of dividends) nullify NUA? If so, would he be required to wait under the next “triggering event” to NUA qualify?
Permalink Submitted by Alan - IRA critic on Fri, 2022-01-28 16:38
If the shares are in an ESOP plan, they could be Sec 404(k) dividends which are reported on a 1099R under code U. Such dividend payments are not treated as intervening distributions that would impair the qualified LSD requirements.
If the participant received other dividends after separation but prior to 2022, they could be intervening distributions. Participant should check with the plan in that case if the plan would still report NUA on the 1099R if the LSD was done in 2022.
Otherwise, participant could always wait until 59.5 and be sure to request the LSD in that year. In this and other questionable situations it is always wise to check with the plan prior to requesting an LSD to make sure the 1099R will be issued to include NUA in Box 6. If the 1099R does not comply it is usually too late to do anything about it.