NUA Question

Submitted by Kevin Chiu on Tue, 2017-10-17 14:52

I have a client that is interested in doing an NUA. The employee of the Company was retired and receiving RMDs from his 401k. The employee passed in 2016 and his beneficiary, his wife, is considering an NUA as she rolls the 401k out to an IRA this year. Questions:

· Is NUA available for a second triggering event? Death is listed as a triggering event and that a beneficiary can do a NUA – but I have not found confirmation that you can have a second triggering event as obviously the deceased retiree’s first triggering event was when he retired.

· If so, can you receive RMD (wife received already) then do an NUA with a complete rollover to an IRA in the same year and have a valid NUA?

Thanks for any help, I haven’t found much to address these questions.



Submitted by Alan - IRA critic on Tue, 2017-10-17 18:01

  • Yes, any triggering event will erase the effect of intervening distributions after a prior triggering event. A frequent example is an employee separating from service before 59.5 and taking distributions, then reaching 59.5 which is a new triggering event making employee eligible for a qualified LSD again. The definition of LSD is Sec 402(e)(4) does not place any conditions for the various triggering events, therefore employee’s death is a new triggering event that can be applied by his beneficiary.
  • While no clear IRS guidance exists on this to my knowledge, the general consensus is that if the LSD is completed in the same tax year as other distributions, it will still be a qualifying LSD for NUA purposes. The RMD would just be part of the LSD, but if the LSD is not completed this year then the RMD would become an intervening distribution for the wife, having occurred in a prior year and after the latest triggering event.
  • From a practical standpoint, client needs to check with the plan administrator to confirm that the 1099R will show Box 6 NUA as a result of the plan concurring that a qualified LSD has been executed.
  • Note that the LSD of employer shares could also have satisfied the RMD for the year since both the cost basis and the NUA can be applied to the RMD. That would have eliminated the need for a separate RMD and would have reduced taxable income which could be high due to the stock cost basis.

Submitted by Kevin Chiu on Thu, 2017-10-19 18:05

Thank you for your input, I appreciate it very much!

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