staging 401k distribution

Submitted by abraham boznick on Wed, 2019-12-11 17:34

I would like to do rollover of my 401k in steps within one calendar year while utilizing NUA. I have left my employer. I am over 59.5. I have 3 different buckets in my 401(k): 1) ESOP (which is company match over years consisting of company stock). 2) company stock that I bought myself 3) other equity based mutual funds.
The 401(k) statement also says that I have
a) after tax
b) before tax,
c) roth 401(k)
d) company match

I plan to do complete withdrawls/rollovers it in the following 4 steps (all in 2020):

Step 1
Take ESOP (company match) and put it into a separate brokerage account for NUA purpose

Step 2
Take 50% of company stock that I bought myself and put it into another separate brokerage account for NUA purpose

Step 3
Take remaining 50% of company stock that I bought myself and roll it into IRA account

Step 4

Take all equity based mutual funds and roll into another IRA account.

I would like to do these multiple steps with multiple accounts for book-keeping purpose. I would like to space out each step by a few weeks.
Should I expect any issues with my 401k plan in requesting such multiple steps or should I expect any issues with 1099R reporting due to these multiple steps?



Submitted by Alan - IRA critic on Wed, 2019-12-11 20:41

  • You have 4 different dates and either 5 or 6 destination accounts when you add in the Roth IRA(s).
  • Should be OK unless your plan has limits on how many distributions they will process as part of an LSD or if there is some limit to the number of receiving accounts. Another possible issue is how to insure consistency regarding application of after tax amounts to either NUA cost basis or to Roth rollovers. 
  • This is a very complex plan, therefore higher risk of a malfunction. First, there is the actual distribution processing of investments to various places, then several months later the 1099R forms are issued which you hope conform to the distribution amounts and application of your after tax contributions. 
  • I think your statement breaks out the current balances in the sub accounts, but also lists the source of all your contributions, the difference being the investment experience within the sub account. You probably had to secure the NUA cost basis separately.
  • Of course, if anything goes wrong it could range from minor to major.  Yes, your distribution of NUA shares is provisional for 60 days because you could change your mind and roll over some of all of those shares of your IRA. This flexibility is nice, but would be alot better if knew what the 1099R forms will look like within that 60 day rollover period. Bottom line is what assurance you have that those in the plan executing this will not mess up including the tax Dept. This probably involves multiple staff and/or Depts. Would be nice to have a point person to monitor all the transactions, but that is pretty unlikely. The more comfortable you can get that they can execute all the way through, the more complexity you can be comfortable with.
  • Whatever you decide, once each distribution is made, closely monitor the receiving account to make sure that they received the correct investments. Before distributions make sure that each new account is set up correctly. The chance to have any error corrected starts decreasing from Day 1; for example if Roth money ever gets deposited into a TIRA account, correction is extremely difficult.

 

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