NUA Eligibility
I have a client that still has a 401k with company stock in it. He has been taking RMD withdrawls form the plan and is now inquiring about doing an NUA. Is he still eligible to do an NUA distribution, even though he has been making withdrawls for several years from his former employers plan? If it matters, he has NOT been using proceeds from the stock to make teh distributions.
Thanks
Rick
Permalink Submitted by Alan Spross on Thu, 2009-06-18 20:48
Unfortuneately, once a former employee waits until RMDs have begun post retirement, it is too late to utilize NUA. The reason for this is that NUA requires a qualified lump sum distribution (LSD). To meet the requirements, there cannot be intervening distributions from the plan after the latest “triggering event”. Triggering events include separation from service, permanent disability if self employed, or death. As you can see, if an employee retires and then waits until RMDs begin, the RMDs (or any other distributions) are considered intervening distributions that eliminate the qualified LSD. The exception is in the first year any of these distributions are taken, since an LSD can still be done in that same year.
In the event he just separated this year, an LSD is still possible because separation is a new triggering event that wipes out prior intervening distributions. Sounds like he has been retired awhile now though.