Two 401k accounts with one lump-sum distribution (LSD) utilizing NUA

Submitted by RonC on Fri, 2021-02-19 18:48

I am in the process of a LSD for one of two savings plans and came across these words somewhere in this forum OR on the IRS website.. “Note that you must distribute the entire balance of all plans of similar type for a qualified LSD. That would include a 401k plan as well as the ESOP shares.” Although the second 401k is not a likely candidate for NUA because of the relatively high cost basis, my two questions are .. 1) do I have to empty the second 401k to satisfy the NUA eligibility for the first ? and, if no, 2) could I process the second 401k in the same manner in a future year without another qualifying event ?



Submitted by Alan - IRA critic on Fri, 2021-02-19 20:27

These LSD rules apply separately to plans sponsored by different employers.  Plans sponsored by different employers are totally independent of each other.

Submitted by RonC on Fri, 2021-02-19 21:00

OK, thank you. Just curious if I did want to utilize NUA on second 401k LSD, would I need another qualifying event ? Other than death, I don’t foresee one. And, a new question, would a second LSD be okay in this same year OR is also this seen as a IRA rollover that is limited to one per year ? Appreciate your reply.  

Submitted by Alan - IRA critic on Fri, 2021-02-19 21:30

Yes, you would need another qualifying event if there have been intervening distributions since your last one. Since these plans are separate, all rules are applied as if the other plan did not exist as long as they are plans of different employers. The one rollover rule is not a factor as it only applies to IRA to IRA rollovers except conversions.

Submitted by RonC on Fri, 2021-02-19 23:03

For the second 401k I haven’t had any distributions as of yet. Can I use the same qualifying event (retirement) that I used for the first 401k ? Does this “qualifying event” rule pertain to the use of NUA only or to LSD in general ?  

Submitted by Alan - IRA critic on Fri, 2021-02-19 23:17

Are these two plans from two totally separate employers?

Submitted by RonC on Fri, 2021-02-19 23:19

Yes, two separate employers

Submitted by Alan - IRA critic on Fri, 2021-02-19 23:48

You should use the most recent triggering event for each plan. Your “separation from service” date will obviously be different for each plan, and while reaching 59.5 is the same date, it may not be the most recent triggering event for each plan. In other words, for each separate plan, what was your most recent triggering event, separation or 59.5?  Then determine if you took a distribution after that event, not counting distributions you do in your LSD year. For example, if you separated from service in 2018, you cannot have taken a distribution in 2018 after separation, or in 2019 or 2020, since those would have erased your triggering event. But you could take a distribution this year before your LSD since all distributions in the LSD year are treated as part of the LSD. You may end up qualifying for NUA for one plan, but not the other, and if you qualify you do not have to use NUA on all the shares that might be eligible. To qualify for NUA, you must execute a qualified LSD. LSDs have implications other than NUA, but if you are concerned with NUA there is no need get into further complexities.

Submitted by RonC on Sat, 2021-02-20 00:44

Thank you. My retirement is my most recent event for both 401k plans. No prior distributions for either. As I said I doubt I’d pursue NUA for the second plan since the cost basis isn’t all that favorable. I suppose I could do the second LSD dueing the same tax year as the first OR do that one next year. I say this because I haven’t seen or heard anything to suggest it needs to be one or the other. Thank You very much for your input. I think this forum is wonderful and a nice gesture from those, such as yourself, to be offering this assistance. Sincerely, Ron 

Submitted by Chris Dime on Wed, 2022-12-07 02:58

Can someone use one triggering event to qualify for NUA LSD on two different 401ks with two different previous employers? ex. I leave microsoft. can I do NUA on both my Msft 401k and my old Boeing 401k that I’ve never touched? 

Submitted by Alan - IRA critic on Wed, 2022-12-07 03:06

It depends. Age 59.5 becomes a triggering event for all former plans, but separation from service only applies to the plan you separated from. As for Boeing, if you have never taken a distribution, your last triggering event is still good if you have one. Beyond that, would need more specifics.

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