NUA and reemployment in subsidiary with same 401K

Submitted by L B on Thu, 2024-01-25 01:45

Hello,

I have a question regarding NUA and reemployment/shared 401K.

Here is the situation –

1) Employed in public company X and participated in 401K with company X stock as employee match (pretax)
2) Quit company X
3) A few years later, joined company Y (non-public) which is a wholly owned subsidiary of Company X which used the same/previous 401k plan as company X but with no company X stock match.
4) Participated in 401k and did some in-plan roth conversions of after tax contributions while employed (no company X stock was converted)
5) Quit company Y last year.

Can I now do a NUA of the company X stock from my ex 401K ?

To clarify, the co-mingled 401K and the IRR (before the second quit but after the first quit) are what is making me ask the question.

Thanks in advance !!



Submitted by Alan - IRA critic on Thu, 2024-01-25 18:32

Does your recent plan statement include the balance from both employments?

Submitted by L B on Thu, 2024-01-25 23:33

Yes, it does. All positions including company X stock are shown.

Submitted by Alan - IRA critic on Thu, 2024-01-25 23:57

  • Then you likely qualify for a qualified LSD for NUA purposes. And if the plan acquired no additional company shares while you worked at Y, the cost basis of the older shares would not be diluted with any higher cost basis shares purchased later.
  • While an IRR would be treated as an intervening distribution for NUA purposes, your most recent separation provides a later triggering event for NUA.
  • Providing a match for some companies in a controlled group and not for others possibly violates the controlled group rules, but that’s immaterial to your question.
  • As always, you wouldn’t want to do an NUA LSD unless you first secured a cost basis quote and that cost basis was low enough (usually under 30% of FMV) to justify using NUA. You should also confirm with the plan that they will report NUA on Form 1099R and you actually qualify. 
  • As part of the LSD, you would have to roll over the balance of other similar plans of the employers, with your Roth 401k funds directly rolled to a Roth IRA, and the balance of the pre tax funds to a TIRA. You would get 3 different 1099R forms with 3 different distribution codes.

Submitted by L B on Fri, 2024-01-26 01:04

  • Thank you for the quick reply and the reminders about the cost basis.
  • In my case, the basis is quite low and it would make sense to do NUA to pay the CG and also reduce RMD’s down the road.
  • Regarding #3, company Y provided a match, just not in company X stock. There were a lot of upset employees due to the no stock match.
  • Lastly, yes the plan is to roll over the LSD to a regular brokerage acct, a Roth IRA acct and a TIRA.

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