NUA treatment on stock transferred to new employers QRP
Is the NUA treatment lost on employer securities when they are subsequently transferred in-kind to a new employer’s qualified retirement plan? In other words can a participant with a triggering event in a subsequent plan make a lump sum distribution of the previous employers stock and take advantage of NUA treatment? My sense is that this cannot be done but I did not find specific reference to code and regulations dealing with this.
Permalink Submitted by Alan Spross on Fri, 2010-12-10 19:16
I don’t know of specific guidance on this, but I suspect this can’t be done. On a more practical note, I doubt that the next employer plan would agree to take on the accounting and tracking of cost basis even if they were allowed to. You would also have the question of what is a qualified LSD, just the assets of the rolled in plan, or whether it would require an LSD to include the current plan assets as well.
If an employee with good NUA potential separates from service, they should probably distribute the NUA stock then and in the same year to qualify the LSD roll the other assets over to an IRA or to a new employer plan. The NUA shares should not go to the new employer plan.
In fact, about the only reason to roll to a new employer plan are either creditor related (continuing ERISA protection), or if there is a specific reason such as building assets for an intended 401k loan from the new plan. You might also due this if you expect to separate at age 55 and plan to take penalty free distributions directly from the new plan. But in most situations the IRA rollover is the best option.