In-Service NUA withdrawals…
If an employee wants to do an NUA transaction at their current employer and their 401k account must be empty by end of year, how does that work? Is the transaction done at the administrator literally on the last day of the year? Or do they suspend contributions a few weeks before the end of the year? Any help is appreciated!
Permalink Submitted by Alan - IRA critic on Mon, 2021-12-06 23:12
Most NUA LSDs are done after separating from service, with separation being the triggering event. Trying to do an inservice LSD invites problems because there are too many things that can go wrong. First, since in service distributions of elective deferrals are not allowed under IRS rules prior to 59.5, the employee would have to be over 59.5 and use that as the triggering event. Further, the plan would have to allow a lump sum distribution while still in service, and the employee would need a clear committment from the plan that the 1099R Total Dist box would be checked if they know you are still participating in the plan. Any year end balance would be problematic to that end, and it is very risky to attempt to time late year transactions given the holidays, vacations, Covid, etc etc. It is always recommended to have LSD completed before December to avoid this type of stress. It would be much safer to wait until retirement before undertaking an LSD for NUA purposes.