Age limit to do NUA from 401k
I am 67 years old. I stopped working when I was 61. I still have my prior employer 401k. I never transferred in/out of this 401k or did any in-plan conversions on this 401k account. I have ESOP funds and company stock in this 401k. Is there an age limit when I need to withdraw funds from this 401k for NUA conversion. Please note I can use funds from other IRA accounts when the time would come to do RMDs.
Permalink Submitted by Alan - IRA critic on Thu, 2024-10-10 10:53
You cannot satisfy a 401k RMD from any other account, not even another 401k.
But if you have not taken any distribution since the day you separated from service, your NUA option is still in play and will be until you must begin RMDs. There is no other age limit, but if the required lump sum distribution is not completed by the end of the year you take your first RMD year, NUA will be forfeited.
But if the numbers justify, you can defer your first RMD until 4/1 of the following year, and the distribution of NUA shares will satisfy the RMD for both years. You will be taxed on the cost basis of the shares, which can be more or less than the taxable income for both of the RMDs due that year. It depends on the numbers, and NUA is not usually beneficial if the cost basis exceeds 30% of the shares values.
All similar plans (401k and ESOP are similar plans) must be fully distributed by the end of the lump sum distribution year, but you do not have to distribute all your NUA shares and use for NUA if you opted to sell some in the plan and only distribute the number of shares you plan to use for NUA. The rest of the 401k must be directly rolled to an IRA to complete the lump sum distribution.
NOTE: If you have non Roth after tax contributions in your 401k, many plans will use that balance to offset the taxable cost basis for the shares. Other plans may allow you to convert the after tax amount to a Roth IRA if you would rather do that. Remember that diversification trumps tax benefits, so if the share value grows too high, you may want to sell some shares in the plan rather than waiting to apply all of them to NUA.