25% Divesture of 401k then retire before 59.5, then utilize NUA upon 2nd triggering event at 59.5
I have company stock in my 401k. I’m 54 currently, when i turn 55, my company allows a one time 25% “divesture” of my 401k. Something like a one time in-service rollover.
If I do this will it be considered a “intervening distribution” and disallow me from doing NUA on my company stock when I retire at age 58 and separate service?
What if I do the 25% divesture when 55, retire when i’m 58 (triggering event 1), DO NO MORE DISTRIBUTIONS, and then wait until i’m 59.5 (triggering event 2), and then move part of the company stock to a NQ account while doing a LSD of everything else into an IRA? Would this be permitted with NUA rules?
Permalink Submitted by Alan - IRA critic on Wed, 2019-02-13 23:58
Qualifying for a triggering event to utilize NUA erases the effect of any prior distributions. Therefore, a distribution before you even have a triggering event has no downside. Your last paragraph is an example of that. If you separated from service and then took an intervening distribution, you could not do an LSD for NUA purposes until you had a new triggering event which would be reaching 59.5, death or disability. Of course, any distribution you take that includes employer shares prior to the year of your LSD will eliminate the chance of using those shares for NUA at a later date.
Permalink Submitted by Jon Steffen on Thu, 2019-02-14 00:08
So in my example, if I distribute 300 company shares at age 55, but then retire at age 58, I can’t do NUA on the 300 shares i distributed at age 55, BUT I can still do NUA on any additional shares I have at age 58 when i retire?
Permalink Submitted by Alan - IRA critic on Thu, 2019-02-14 02:10
Yes, that is correct.
Permalink Submitted by Jon Steffen on Thu, 2019-02-14 15:41
Thank you!