NUA “Lump Sum Distribution”
Example:
James, age 62, retires in 2024
He has a large portion of his 401k in NUA-eligible company stock. (Basis 20% of value)
James takes out his 401k periodically while working and after retirement because he likes to spend money.
We want to:
-sell 1/2 the company stock into his regular 401k to reduce the size of the NUA
-Rollover the non-company stock to an IRA
-NUA the company stock
Ideally:
-we like to do the Rollover in 2024, and the NUA in 2025 (lower bracket in ’25)
Fidelity has verified that his 401k is still eligible for NUA. (even with some withdrawals)
My understanding is:
-Since he’s taken withdrawals in 2024 after he retired, the NUA needs to happen in 2024. (need a zero balance by Dec 31)
-He can Rollover the non-NUA part first, isolate the stock, then NUA as long as it’s done by Dec 31st.
-If he wanted the NUA to be done in 2025, he would have had to not taken withdrawals after retirement and not Rollover the non-NUA part in 2024
Please correct my understanding.
Thanks
Joe
Permalink Submitted by Alan - IRA critic on Wed, 2024-10-23 14:18
Your understanding is correct.
He could only wait until 2025 to do the LSD if he took no distributions in 2024 after retiring. The date of retirement is treated as the triggering event and any distribution after the date of retirement and prior to the LSD year is an intervening distribution that negates use of NUA.
In the LSD year he can take as many distributions as desired, but the balance of the 401k and all similar plans must be 0 at the end of the LSD year.