NUA treatment (after a previous rollover)

Submitted by ShipsnGiggles on Mon, 2013-04-01 16:30

Good Morning

Assistance with the following scenario is greatly appreciated

401(k) participant, post separation from service, rolled over non company stock assets directly to an IRA.
Participant would now like to recieve NUA treatment of his company stock
The previous roll over was done in a prior year.

Does the prior rollover taint NUA treatment?

Thank you!



Submitted by Alan - IRA critic on Mon, 2013-04-01 17:49

It may be an “intervening distribution”. What were the years of separation, the rollover, and most importantly what year does participant reach 59.5? Is there any total disability situation?

Submitted by ShipsnGiggles on Tue, 2013-04-02 16:17

Alan,I am not familiar with the term “intervening distribution”I have gathered the information requested401k particiipant retired in 2003 at age 58 (DOB 8/31/45)IRA rollover was completed in 2007 at 61 (unsure if the rollover contained company stock)Thank you

Submitted by Alan - IRA critic on Tue, 2013-04-02 17:28

  • A qualified LSD (lump sum total distribution) for NUA purposes requires that the LSD be taken in a single tax year following a triggering event. If a triggering event (separation or age 59.5 in this case) is not followed by the LSD as a result of an intervening distribution (the one after the triggering event but before the LSD year), the participant can wait for a new triggering event. Unfortuneately, after age 59.5 the only remaining possible triggering event is participant’s death, so he cannot wait for a new triggering event unless he wants to leave the NUA shares to his beneficiary. This participant separated at 58, then had another triggering event at 59.5. However, he then did the 2007 rollover which is the intervening distribution between the triggering event and the year he plans to take the LSD.
  • To further complicate this issue, there are provisions that allow limited NUA treatment in the event the participant cannot take a qualified LSD as indicated above. In these cases, the amount of NUA allowed is only the NUA on participant’s EMPLOYEE contributions, ie after tax contributions if the participant made these and employer stock was purchased with these contributions. To determine if participant has any such shares, he should ask the plan administrator.
  • Whether the prior rollover contained company stock or not does not limit NUA on any remaining stock in the plan, however the 2007 rollover is an intervening distribution. This concept is also explained starting on the bottom of p 2 in the following release from the Exxon Mobil plan administrator:  http://www.krosnowskiandscott.com/pdfs/exxonmobil_plan_update.pdf

 

Submitted by ShipsnGiggles on Tue, 2013-04-02 20:16

AlanI cant thank you enough for you insight.  You have helped me signifcantly.One more NUA question. How is NUA treatment reported? Thank you!

Submitted by Alan - IRA critic on Tue, 2013-04-02 20:47

The gross distribution on the 1099R goes on line 16a and the cost basis in Box 2a goes on 16b. If there is a rollover to an IRA in the same year, those numbers go on 16a and “rollover” is shown next to 16b. Then whenever the NUA shares are sold, the sale is shown on Form 8949 in the LT section (not sure if the 1099B sale of shares will be reported as covered shares or not, just follow the 1099B). The final cap gain goes to Sch D.

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