NUA over a 2yr period
A client’s plan administrator has told us that the client’s company stock in the 401k plan is available for NUA, but must be taken out in groups over a two year period. Does this type of an arrangement sound correct? I was under the impression that if any distribution had taken place, the NUA option was no longer avialable. If that’s correct, wouldn’t the first NUA distribution eliminate the option for NUA in the future?
Thanks!
Permalink Submitted by Alan - IRA critic on Thu, 2014-03-27 19:54
This is a problemfor NUA. If the shares are distributed in different calendar years, the first distribution would not be eligible for NUA because there has not yet been a lump sum distribution of the plan. In that case, might as well sell the first year’s shares within the plan so there is no intervening distribution after separation. Client could also look into how the 2 years is measured. For example, does it start on the date of separation or are calendar years used? If the period starts at separation and if client separates in June, he could perhaps distribute the shares in Jan or the following (still in the first year after separation) and the rest at the end of that year which would be in the second year after separation. That would solve the problem as all shares would be distributed in the same calendary year. Perhaps the company can provide more detailed information. It’s possible they have been issuing the 1099R forms incorrectly in the past showing NUA in Box 6 and the IRS did not catch the later distribution.