NUA active employee continue contributions?
If an active employee is eligible to utilize NUA via a LSD with a 59 1/2 withdrawal; can that employee continue their contributions into the plan that same year without harming their NUA status? Thank you.
If an active employee is eligible to utilize NUA via a LSD with a 59 1/2 withdrawal; can that employee continue their contributions into the plan that same year without harming their NUA status? Thank you.
Permalink Submitted by Alan - IRA critic on Mon, 2014-04-07 20:57
Using 59.5 instead of separation from service as the triggering event is rare. Usually the employee separates and then completes a qualified LSD. If still working it is not clear what it will take to get the 1099R to be completed with the total distribution box checked, because that is what the IRS will be looking for. In addition, the LSD must include the entire balance of all plans of the same type of the employer. Being taxed on the cost basis of the shares in a year where employee is still working is not good, but employee might need the money and the cost basis may be low enough as a % of FMV.
Permalink Submitted by Barry Bacharach on Thu, 2016-05-26 06:16
I have a situation where my employer is discontinuing the employee stock fund as a 401(k) plan investment choice, and will be moving the value of any existing shares in this fund to a different fund, so this is another reason why an employee would not wait to use separation from service as the triggering event. Sadly, an employer’s discontinuing the investment choice does not seem to be a triggering event, and this forum has indicated in another post that direct rollovers from the 401(k) plan after a triggering event disqualify NUA treatment, so an employee who made a direct rollover from the 401(k) plan after age 59.5, where the employer subsequently eliminated a company shares fund as a 401(k) investment choice, would never be able to take advantage of NUA treatment for the shares
Permalink Submitted by Alan - IRA critic on Thu, 2016-05-26 18:32
Are you sure that the nature of the new fund will not also qualify for NUA treatment with a qualified LSD?