NUA eligibility
In Nov 2014, based on IRS guidance “Notice 2014-54”, I did an in-service rollover of my after-tax contributions to a Roth IRA and the associated earnings to a Rollover-IRA. I knew my NUA eligibility was not jeopardized and Vanguard confirmed it. I retired from my employer in October 2016 and there is no requirement for me to close or move my 401K plan (by total LSD). I like the low-cost advantage so I kept it open but I had additional after-tax contributions in my 401K plan, so I did another after-tax rollover in Dec 2016 intending it to be similar to the one in Nov 2014. Now I am starting to think about taking NUA, Vanguard has been giving me conflicting answers depending who I get hold of on the phone that day.
Would someone be able to advise if I am still eligible to take NUA?
Permalink Submitted by Alan - IRA critic on Fri, 2017-07-28 19:10
An intervening distribution is any distribution taken after your triggering event for NUA (Separation from service) and prior to your LSD. If you do such a distribution, your qualified LSD is eliminated until you have a new triggering event. If you are not yet 59.5, reaching 59.5 will be a new triggering event which will present a new window for a qualified LSD. The only other possible future triggering events are your total disability or death. Your Dec 2016 distribution was likely an intervening distribution that erased your separation triggering event. However, it is possible that since this distribution was done in the SAME YEAR as your separation, some plans may not treat it as intervening. The IRS has not clarified this to my knowledge, so you need to ask your plan administrator if they would report NUA in Box 6 of your 2017 1099R if you took an LSD now. The IRS is not likely to question the 1099R, so this question will be in the hands of your plan administrator. That said, getting your after tax contributions into a Roth IRA may well have been more beneficial for you than NUA unless your NUA cost basis is very low, for example under 20%.
Permalink Submitted by Henry Woo on Sun, 2017-07-30 18:26
Thanks for your insight. You are probably right, the eligibility of NUA of my employer stocks in my 401k plan is now in the hands of the administrator-Vanguard. I think I asked enough times this year that if I take LSD (Lump Sum Distribution) this year, they would remember what they told me and NOT let me take NUA. My composite basis is 29% (I wish it was lower). NUA would still represent significant tax savings. I did not think getting to move after-tax contributions from 401K to Roth is mutually exclusive to taking NUA. Nobody told me about the “Intervening distribution” effect. At this point the only possible triggering events left are disability or death – neither one is too desirable. Well, it is what it is. I’ll try to take LSD in 2018 and at that time I’ll ask Vanguard to note NUA in box 6 of 1099R for 2018 and see if they make a fuss, then we’ll discuss if my Dec 2014 rollover was considered “intervening” or not.