Distribution and NUA
Can an employee who has retired take a partial cash distribution from a plan and still take advantage of NUA later in the same year? Let’s say he took a $30k cash distribution in April to pay off debt then moved his company stock to a NQ plan to take adv of NUA in May. Finally, he rolled over the balance of the 401k in July to an IRA. Since all the distributions happened in the same calendar year, would he still be able to recognize the NUA?
Permalink Submitted by Alan - IRA critic on Tue, 2016-03-08 23:52
There is no clear guidance on this, but the IRS will not likely question the 1099R if it is completed with NUA in Box 6 and corresponding cost basis in 2a. Note that the same intervening distribution question would apply if employee did not take any cash distribution, but did the IRA direct rollover a week prior to the distribution of shares. I think the definition of intervening distribution is intended to exclude activity in the LSD year, and that is the way most plan administrators report it. But others have an arguable point.