NUA
I have a prospect who has a concentrated position in her employer’s company stock within her 401(k). She sold some of the stock in 2020 to take a partial withdrawal under the CARES Act. She retired in Sept. 2021 and sold more stock to take another partial distribution in December of 2021. She turned 59 ½ in November of 2022 and wants to take a lump sum distribution and use NUA. The recordkeeper initially told us she could NOT utilize the NUA since the prior partial withdrawals negate her ability to do so. We got conflicting answers when we called back and were told she COULD use NUA which aligns with my thought that having a triggering event AFTER those withdrawals would provide her with another window of opportunity. They suggested we consult a tax professional.
Permalink Submitted by Alan - IRA critic on Tue, 2023-02-14 16:46
Her new triggering event of reaching 59.5 will erase the prior intervening distributions she took, therefore she is again qualified for an LSD for NUA purposes. That said, the plan itself must be willing to report the LSD showing NUA in Box 6 therefore the LSD should not be requested until it is clear that the plan is in agreement. Note that NUA may not be worthwhile unless the cost basis is around 25% or less, unless she plans to sell the shares fairly soon to fund retirement expenses, in which case the lower LTCG rates on the NUA will be less than the ordinary income rate.