RMD and After Tax Contributions
I have a 401K with $1,000,000. I have $18,000 in pre 1987 after tax contributions and $27,000 in Post 1986 After-Tax contributions. Do any of these after tax contributions affect the calculation of my RMD? Does it just affect the taxes I pay on my RMD? If I am going to take advantage of the NUA treatment, what basis do I use, the current one or that of 12/31/2007?
Permalink Submitted by Alan Spross on Fri, 2008-11-07 02:50
Your last chance to take advantage of NUA is the year you elect to take your first RMD, or previously if you took distributions after age 59.5. After that the RMD would be deemed an intervening distribution and only your beneficiary would be able to tap the NUA, as you would have missed the last chance for a qualified LSD.
If you simply take an RMD, you can specify that the pre 87 after tax distributions come out first, and they would be tax free. After they are distributed, additional amounts come out pro rated unless you do a direct rollover.
You could first do a direct rollover of the pre tax amount to a TIRA, and the plan would withhold the RMD, which would come to you pre tax. Then, in the same year if you still qualify for an LSD, the after tax amounts that are left could be applied to the taxable cost basis of the NUA shares. The key is to do this in the correct order, but you cannot do the LSD without rolling over the rest of the plan to an IRA, since that is what an LSD is. The 401k balance would be totally distributed or transferred. The mix of pre and post tax depends on how much you hold in NUA shares and how much of that you want to use for NUA vrs IRA rollover. If you first do the IRA transfer of more than the pre tax balance, some of the rollover will be after tax and result in a basis added to your IRA.
Obviously, you are working with the maximum of variables here:
1) RMD year
2) Mix of both pre 87 and post 86 after tax amounts
3) NUA potential
4) Potential Roth conversion potential if income permits
The permutations here can be mind boggling enough that you probably should seek some professional assistance in making these decisions before acting, because once you pull the trigger on the first transaction, your options become severely limited.
If you have not yet reached the first RMD distribution year, it gets a little simpler, but I am not sure that is the case.
Permalink Submitted by charles lore on Tue, 2008-11-11 01:48
Alan I have a question on this:
“Your last chance to take advantage of NUA is the year you elect to take your first RMD, or previously if you took distributions after age 59.5. After that the RMD would be deemed an intervening distribution and only your beneficiary would be able to tap the NUA, as you would have missed the last chance for a qualified LSD.”
I checked with Natalie’s book and she says the “balance to the credit” has to come out ” as of the first distribution following the most recent triggering event” .. “within one taxable yr”
She does NOT list first RMD as a triggering event.If all of this is true why his last chance to do a LSD and thus NUA be in the yr you elect to take RMD?
I agree with the 59 1/2 since that is a triggering event.
Also if I have 1.000,000 in QP and 500,000 is employer stock and basis in stock is 200,000 can I roll 700,000 into an IRA ( 200,000 in stock and 500,000 other stuff) and pull 300,000 in stock out.. and consider the 300,000 all NUA while the 200,000 to IRA is all basis?