I have a client with a $1.1 million dollar 401k that we’d like to rollover to an IRA. He turns 70.5 next year.

Roughly it breaks down as follows:

$85k of vested after-tax dollars – maybe $40k contributions
$165k company stock with a cost basis of around $40k.

First, to do the NUA, is this the proper process (in the same calendar year)

1. Do a direct rollover of $935k to an IRA
2. Once done, do a lump sum distribution of company stock. Pay tax on the $40k and then pay capital gains on the $125k whenever the stock is sold. No need to worry about the 20% withholding.

If that is correct, what happens to the after-tax contributions. I know most distributions are pro-rate, but any guidance would be appreciated.

Thanks