Net Unrealized Appreciation
In Ed’s audio telecast today he briefly mentioned NUA rules. He stated that the NUA rules were available for lump sum distributions provided there were no partial distributions in the past. What happens to older employees who elect to diversify from an Employer’s ESOP by taking the 25% distribution as a rollover to an IRA in one year and then elect a lump sum distribution in a future year? Have they voided the opportunity for the NUA benefit for all future years by taking a diversification rollover distribution in 2008?
Permalink Submitted by Alan Spross on Tue, 2009-03-03 22:26
A qualified LSD for NUA purposes is one that follows a triggering event with no intervening distributions. In the case you describe, the NUA is not necessarily eliminated if a new triggering event occurs after the partial distribution. For example, separation from service is a triggering event. If the employee separates prior to 59.5, then takes the partial, NUA is only eliminated until the next triggering event. When the employee hits 59.5 he has a new triggering event which erases the partial intervening distribution and he could then take an LSD. Another triggering event is total disability if the participant was self employed. The only remaining triggering event is death, and that obviously only applies to the benefit of his beneficiary, who can then take the LSD.
In other words, the 2008 distribution will eliminate NUA unless another triggering event occurs. If this happened after 59.5, the chances are not good that the employee will be able to utilize NUA, although his beneficiaries will be able to if he leaves some employer stock in the plan at his death.