Nonspouse Inherited 401K NUA Treatment of Company Stock Distribution
If a nonspouse inherits a 401K in 2022, and the custodian performs a “force out of RMD distribution” in 2022, which was the year of the original owner’s death, can the beneficiary still perform an in kind transfer of company stock from the 401K in the year after owner’s death (2023) , to the beneficiary’s retail brokerage account and characterize it as an NUA event? The beneficiary took no distributions but the custodian automatically made a forced out distribution to the beneficiary in the year of the owner’s death. Does the the forced out RMD distribution by the custodian in 2022, which was made to satisfy the original owner’s RMD — negate the beneficiary’s ability to make an in kind company stock transfer to a beneficiary’s retail brokerage and assign it as an NUA event, with the tax benefits of such an event?
Permalink Submitted by Alan - IRA critic on Sun, 2023-04-16 18:20
Yes, the RMD distributed after the NUA triggering event becomes an intervening distribution which disqualifies NUA treatment in a later year. The qualified LSD for NUA purposes would have had to be completed by 12/31/2022 in order to utilize NUA. I assume that the participant did not pass prior to RBD due to age or the still working exception, in which case the RMD distribution would have been a plan error.
Permalink Submitted by carol wagner on Mon, 2023-04-17 17:31
Thank you for your information. I only just became aware of the NUA benefit and thus missed the 2022 year end deadline (the year of my 76 year old brother’s passing). I thought I could still utilize this benefit in the year following death but apparently the plan custodian’s force-out of the 2022 RMD negates that benefit?
Permalink Submitted by Alan - IRA critic on Mon, 2023-04-17 19:21
Yes, the RMD does become an intervening distribution between the date of the triggering event and the year of the LSD. Note that if the cost basis of those shares is much over 25% of the current value NUA would not likely have been beneficial anyway, particularly if the beneficiary is an EDB due to not being more than 10 years younger than brother and could stretch the RMDs.