NUA Timeframe

Submitted by Gil Shifrin on Mon, 2017-10-23 12:36

I will be retiring in January 2018. I will be executing NUA with company shares because the NUA is 5 times the cost basis. When I execute the NUA I have to move all 401K monies out to IRA and taxable account. Do I have 365 days to complete the transaction or do I have to complete it in the calendar year for 201?. Also is there a rule that you have to execute the NUA within a year of retirement. I would prefer to execute the NUA in 2019 because I have accepted an early retirement package. I will retire in January 2018 ; however, I will receive biweekly checks till mid August.



Submitted by Alan - IRA critic on Mon, 2017-10-23 15:29

  • NUA requires a qualified lump sum distribution of the balance of all similar plans of the employer. The 1099R that reports the LSD shows the amount of NUA in box 6 and must also be for the year in which the “Total distribution” box  is checked. If you do not want the cost basis of the shares to be taxable in 2018, you can wait until 2019 to do the LSD, but you cannot take ANY distribution from the plan in 2018 (after date of separation) that is not an LSD since that would be an intervening distribution that would forfeit use of NUA for your triggering event of separation.
  • If you are under 59.5, reaching that age would constitute a new triggering event and erase the effect of an earlier intervening distribution. If you are over 59.5, there will be no future triggering events until your death, and therefore you must avoid taking a distribution from the plan until your LSD year.
  • Therefore, there is no 365 day time limit for taking the LSD. You could wait for years (at least until RMDs begin) before doing the LSD as long as you do not take any distributions in the interim. The NUA would probably increase during this time, less so if dividends are reinvested in more employer shares.
  • Note that if you made any after tax contributions to this plan, the planning options and complexity increase with respect to how the after tax amount is allocated by the plan. 

Submitted by Gil Shifrin on Mon, 2017-10-23 15:44

Thanks. I forgot to mention I am currently 70 years old (birthday in April). This year was my first RMD year. How does this change things?

Submitted by Gil Shifrin on Mon, 2017-10-23 15:52

I meant to say for 2017 my IRA’s are under RMD – Not my 401k because I am still working. My goal is to execute the LSD in the year with the least amount of income. That would be in 2019 since I will not be working any more and will not receive any more checks from last employer. 

Submitted by Alan - IRA critic on Tue, 2017-10-24 04:54

Retiring in Jan, 2018 will result in 2018 being your first RMD distribution year, but the 2018 401k RMD can be deferred to as late as 4/1/2019. If you defer, then you will have to take two 401k RMDs in 2019, but both the cost basis and the NUA amount will count toward these two RMDs. This works well because you would take no 401k distribution in 2018, and your 2019 LSD will include distribution of the employer shares and that should be enough to also satisfy the two years of 401k RMDs. SInce the first amounts distributed in 2019 must be applied to the RMD, the plan cannot do the IRA rollover piece until after the distribution of shares to the taxable brokerage. So be sure the shares are distributed first or at worst at the same time as the IRA direct rollover.

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