NUA trigger event

Submitted by Bill Lenger on Mon, 2017-11-27 19:11

I have company stock in my company 401k. I have a question regarding Net Unrealized Appreciation (NUA).
– Several years before I retired, I did a direct transfer of dollars from my 401k directly to an IRA.
– I retired in 2014 at age 56.
– In 2015 at age 58 I did an in plan conversion of a small portion of my 401k to a Roth 401k within the same company 401k plan. A portion of the conversion was pre tax dollars (62%) and the remaining 38% was after tax dollars. I paid tax to the IRS on the 62% of the conversion.
– In 2016 at age 59 I did a direct transfer of dollars from my 401k directly to an IRA. I also did an in plan conversion of a small portion of my 401k to a Roth 401k within the same company 401k plan. A portion of the conversion was pre tax dollars and a portion was after tax dollars. I paid tax to the IRS on the pre tax dollars of the conversion.
– In early 2017 I turned 59 1/2 years old. I have had no 401k transactions since turning 59 1/2 years old.

My NUA question:
Does my turning age 59 1/2 become a trigger event that makes me eligible again to use NUA treatment for the company stock portion of my company 401k?

My concern is the several 401k to IRA direct transfers and 401k in plan Roth 401k conversions over multiple years mean I am no longer eligible for NUA treatment or does the age 59 1/2 trigger event provide a reset to allow me to again use NUA treatment? If I am eligible for NUA I am considering using it in 2018.



Submitted by Alan - IRA critic on Mon, 2017-11-27 23:55

  • Yes, fortunately turning 59.5 is a new triggering event for you and erases the intervening distributions of 2015 and 2016 that occurred between your retirement and reaching 59.5. Therefore, you can utilize NUA as long as you do not make another intervening distribution after reaching 59.5. Doing those in plan Roth rollovers used up some or all of your after tax contribution balance in the plan, but any remaining after tax balance will probably be used to reduce your taxable cost basis if you do the LSD for NUA purposes. 
  • With many plans, after Sept 2014 you could have done a split rollover per Notice 2014-54 sending the after tax amount to your Roth IRA and the pre tax amounts to your traditional IRA. That would have eliminated any tax due on those rollovers. However, the taxable in plan Roth rollovers probably occurred in  low marginal rate years, in which the conversion of modest pre tax amounts was probably done at a low rate, and will further reduce your RMDs in the future as well as getting more dollars into your Roth 401k. 

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