NUA and Lump Sum Distribution rules

Submitted by Bradley Bofford on Mon, 2014-09-08 21:14

I met with a client who had $500,000 in an old 401k plan. He had $200,000 of company stock in an (ESOP)and remaining balance in funds. He rolled over $300,000 of funds to IRA in 2011 and left the stock in the 401k plan.

He is 47 and left the remaining balance of stock to potentially use NUA in the future. Did this violate the Lump Sum Distribution and negate the ability to use NUA?

Are there any other options to consider. Thanks.



Submitted by Alan - IRA critic on Mon, 2014-09-08 23:07

  • His 300k distribution is considered to be an intervening distribution even though he rolled it over. His prior triggering event was separation from service and the 2011 intervening distribution means that he will not be able to take a qualified LSD until he has another triggering event. The next triggering event will be reaching age 59.5. Therefore, he will next be able to utilize NUA and take the LSD when reaching 59.5. That should enable the plan administrator to show the NUA in Box 6 of the 1099R.
  • If he wants to diversify out of these shares before then, he should check with the plan to see if he can roll over some of the shares to an IRA and then sell them. 12 years is a long time to wait. What shares he leaves in the plan should still be eligible for NUA when he reaches 59.5. If the plan accounting shows different cost basis of some shares (most plans require an average), he would of course want to roll over the highest cost basis shares and leave the others for NUA.
  • In addition, if the shares generate dividends, such payments are not considered intervening distributions, although at this point he has already done an intervening distribution.

Submitted by Bradley Bofford on Tue, 2014-09-09 13:03

Thanks for the response.  Very helpful!

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