ESOP distribution at retirement and UNA
Client is retiring next year. Has about $2 million in company stock in his ESOP. Distribution of ESOP would be made in three annual payments over 24-month period (Jan. 2022, Jan. 2023, Jan. 2024).
Can client use UNA treatment for the portion distributed in Jan. 2022, or is UNA treatment lost on the entire distribution because full distribution is over more than twelve months?
If client can use UNA treatment for the portion distributed in Jan. 2022, can he also use it for the portion distributed in Jan. 2023 if it’s within twelve months (i.e., first distribution on Jan. 31, 2022, second distribution on Jan. 22, 2023)?
Permalink Submitted by Alan - IRA critic on Wed, 2021-09-15 19:41
NUA requires a lump sum distribution of the entire ESOP plan balance, which is not possible. While the final installment in 2024 would be a lump sum, then the problem is that the earlier installments have become intervening distributions after the triggering event of retirement. The only way to thread the needle between these restrictions would be if client reached 59.5 after the 2023 installment and before the last installment. In that case reaching 59.5 would become a new triggering event erasing prior intervening distributions and would make NUA available for the final installment only.
Since the above requirements are probably unworkable, suggest client ask the ESOP administrator if there is any way that NUA could be utilized. All the ESOP participants are probably asking this question, so the administrator should be able to answer it.