NUA and Triggering Event
Is it correct to say that one can take a lump sum distribution (to take advantage of NUA) in one single tax year after any of the triggering points (understanding that only one time can it be claimed)? In other words, one is not required to use the NUA in the year upon separating from service if that came before the triggering point of age 59.5?
Situation is individual left company at age 54. Since that time he rolled over in two different years partial distributions of funds but did not touch his company stock. These would be intervening distributions if I understand it correctly. Also it does not matter if the monies distributed were pre or post tax? He has now turned 59.5 in May of 2014. This would be a new triggering event. From this point on, he can choose to do the NUA tax treatment of his stock as long as he does not take any additional distributions unless he distributes the full remaining plan balance in one single tax year. There is no requirement for him to do the lump sum distribution in the year he turned 59.5 or within one year from that date? And should do so before or at age 70.5 at latest as distributions would be mandated that year.
Thank you for the confirmation that I am seeing this correctly from the other posts. Also, just wondering who is Alan-iracritic and his credentials since he seems to be the primary responder.
Permalink Submitted by Alan - IRA critic on Sat, 2014-09-20 18:37
Yes, you have this exactly right. As long as no other distributions are taken after 5/2014 in a year prior to the LSD year, the LSD can be taken years later. The NUA could grow or shrink in this interim, and of course if it shrinks too much, individual could then simply roll the shares to an IRA instead. If there are large reinvested dividends on these shares while still in the plan, that tends to raise the cost basis since the new shares are being added at the current higher price than the old shares. Finally, if these are ESOP shares and participant is being paid dividends in cash, those dividend payments are NOT considered intervening distributions and not reported on a 1099R.
Permalink Submitted by Leslie Corcoran on Sat, 2014-09-20 19:25
Thank you so much. Can’t say how much time, accountants, research groups, I have been through to only get the incorrect answer which I did not feel was accurate.You obviously are extremely knowledgeable.thank you.
Permalink Submitted by [email protected] on Fri, 2014-09-26 16:06
this concerns me -From this point on, he can choose to do the NUA tax treatment of his stock as long as he does not take any additional distributions unless he distributes the full remaining plan balance in one single tax year. There is no requirement for him to do the lump sum distribution in the year he turned 59.5 or within one year from that date?Sounds like OP is trying to just take the NUA out, not as part of a LSD, and plan to take an LSD at some point in the future. If wanting to take NUA, he MUST take it as LSD in same tax year, not as OP wrote as above?Am I misreading OPs post? thanks for clarification-m
Permalink Submitted by Alan - IRA critic on Fri, 2014-09-26 20:04
No requirement to do the LSD in any particular year as long as there are no interim years where a distribution it taken. Another way of putting this is that after a triggering event year, the next 1099R must be the LSD 1099R. There can be years in between without any distributions. RMDs will be intervening distributions unless the LSD is also done in the first RMD year.