NUA Opportunity

Submitted by Marina Ferrone on Wed, 2018-08-22 14:48

51 year old taxpayer terminated from employment has employer stock in 401(k) about $200K and balance in non-employer stock. The entire balance was rolled over to an IRA. Is it to late to take advantage of the NUA opportunity with the employer stock portion? Does taxpayer qualify for the age exception due to the termination?



Submitted by Alan - IRA critic on Wed, 2018-08-22 17:02

  • NUA potential is extinguished once the shares are rolled into an IRA, so it is too late.  However, the taxpayer is now free to diversify his holdings without any current tax impact, which is a plus.  With respect to the separation from service exception, the separation cannot occur prior to the year the employee reaches 55 UNLESS the employee meets the definition of a qualified public safety employee of a govt entity, in which case the age is 50.
  • If the taxpayer will need to take consistent IRA distributions for living expenses, the 10% penalty can be avoided by setting up a 72t  (SEPP) plan which will have to run until this taxpayer reaches 59.5. These plans are inflexible and not meeting the various rules and restrictions will result in retroactive penalty and interest.  
  • In addition, if taxpayer finds a new job with a 401k or similar plan that accepts IRA rollovers, and if he has not started a 72t plan, he could roll the IRA money into the new 401k plan. If he then is able to work until the year he reaches 55, the current plan including the IRA money rolled into it will be accessible without penalty.  However, if he starts a 72t plan now he cannot roll that IRA into the new 401k and continue the plan. Most likely he would stop the IRA distributions which would bust the plan.

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