NUA-Timing correctly?
My client just turned 60 years of age. His official retirement/separation from service is 6/3/2025. Approximately 20% of the value of his 401k is in company stock. Can we split the rollover from his 401k between this year and next? In other words, rollover everything but stock this year, and all his stock next year completing the lump sum distribution to a NQ Account? Thank you.
Permalink Submitted by Alan - IRA critic on Fri, 2025-05-30 12:42
No, that cannot be done because the 2025 distribution will be treated as an intervening distribution that erases the separation from service triggering event.
The choice is to complete the LSD this year of the entire plan or do nothing for the rest of this year and complete the LSD next year. If client does not want to use all the shares for NUA he has the option of selling some in the plan (the highest cost basis shares if the plan does not require use of average cost) and using the rest for NUA.
Of course, next year client will not have partial year wage income if the goal is to equalize taxable income over the two years, but the amount of NUA cost basis relative to salary depends on the salary and the amount of NUA shares.
If client has any non Roth after tax balance in the plan, there may be choices on how that is utilized, whether applied to reduce the NUA taxable cost basis or separated in order to roll the after tax amount to a Roth IRA. Choices will depend on the plan provisions and flexibility.