NUA Distribution -Intervening Distribution

Submitted by Brian Holthus on Wed, 2023-04-19 16:17

Does anyone know if a withdrawal of stock held in a 401K Roth account qualifies as an “intervening distribution” which would prevent someone from qualifying to use the NUA strategy on other shares held in the 401K that were not ROTH shares? The withdrawal was done prior to the year of performing the NUA strategy?



Submitted by Alan - IRA critic on Wed, 2023-04-19 17:42

  • Yes, such a distribution from the designated Roth sub account would be an intervening distribution regardless of whether that distribution included employer shares or not. An intervening distribution is any distribution from a plan or like plans for NUA purposes that occurs after the most recent triggering event and the before the year of the LSD.
  • While use of NUA is rare in the designated Roth account because eventual tax free distributions are preferable to the LTCG rate, note that IRS Reg 1.402A-1, QA 10 describes the rules for applying NUA to a distribution of employer shares from a designated Roth account.  Because of this, even if there was debate over whether an intervening distribution should be applied to certain other plans included in the LSD requirement, that question would be moot for a designated Roth account in the same plan, particularly if the Roth holds employer shares.

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