NUA and in-plan conversion of “after tax” into ROTH

Submitted by Mitchell Kaufman on Tue, 2019-12-17 21:31

I am 63 years old and retired. I have a 401k company plan and I converted some (after-tax) monies to my 401k-ROTH.
My 401k plan is now comprised of an ESOP, ROTH and a “before-tax” account. I recently spoke with the plan’s customer service and was told that by converting the “after-tax” 401k funds to the 401k-ROTH, I started my NUA calendar year and that I will only have until the end of 2019 to declare NUA.
I cannot find anywhere in the IRS periodicals that my action should have caused this.
Is my plan rep. correct or can I initiate NUA in a future year?
Thank you.



Submitted by Alan - IRA critic on Wed, 2019-12-18 00:09

  • Notice 2013-74 (IRRs) QA 9 addresses this. Customer service is correct. You have done an IRR (in Plan Roth rollover) which is considered a distribution. By doing such a distribution after all your triggering events have passed (age 59.5 and separation from service) and prior to the LSD year, you are taking an “intervening distribution” and that disqualifies your LSD for NUA purposes unless you can complete the LSD by year end. You will have to get on this tomorrow to have any chance, and it may already be too late . That QA 9 answer is copied below:
  • “A-9.  Yes.  An in-plan Roth rollover is treated as a distribution for purposes of determining eligibility for the special tax rules on NUA, whether the rollover is made by an in-plan Roth direct rollover or by an in-plan Roth 60-day rollover.  See also Q&A-7 of Notice 2010-84. “
  • The only other triggering event you could have is your death. So if you did this IRR and left the appreciated shares in the plan because it is too late to complete your LSD this year, your plan beneficiary could still complete the LSD and use NUA since your death would be a new triggering event which would erase prior intervening distributions. Obviously, not the way you would like to proceed.
  • If you have lost the chance for NUA, that might not be a disaster unless your cost basis is very low, eg under 25% of FMV. More than 25%, NUA is generally overrated. And of course, you might want to diversify out of these shares sooner rather than later if you have too many shares.

Submitted by Mitchell Kaufman on Wed, 2019-12-18 01:37

Alan,Thank you for your quick and complete response!How a layman is supposed to know/find this information is beyond me.Live and learn.

Submitted by Alan - IRA critic on Wed, 2019-12-18 02:48

Yes, NUA is complex from both a planning and execution standpoint. I am impressed that the rep knew about the intervening distribution issue on a subject that most plan reps would not know. Too bad you were not told this before you did the IRR. 

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