NUA

Submitted by Arun SHAH on Wed, 2020-01-22 15:55

I am retired 1st week of March 2019.
I had a 401k plan with AEP (company) stock and mutual fund. I had also AEP pension plan without any stock.
I had transferred Pension fund to rollover IRA and also took minimum distribution without NUA in 2019.
I was not aware of 3 steps and took minimum distribution ( from 401k) for year 2020.
Can I still take NUA by transferring mutual fund and partial transfer of company stock in the rollover IRA,
and take NUA for partial company stock transferring in the NON IRA (taxable) in kind.
I assume taxes to be paid on the cost basis only.
If possible which form I have to filled out.

Thanks,



Submitted by Alan - IRA critic on Wed, 2020-01-22 16:14

  • Your NUA triggering event was the 3/2019 separation from service (retirement date). Since 2019 was apparently an RMD year and the plan distributed an RMD to you after the retirement date, that RMD unfortuneately is treated as an “intervening distribution” and disqualifies NUA.  Since you did a direct rollover to an IRA in 2019, the plan was required to distribute the RMD for 2019.
  • You could have avoided this by doing nothing in 2019, then doing your lump sum distribution this year. There would be RMDs due for both 2019 and 2020, but the distribution of employer shares to a taxable brokerage account would have probably been enough to satisfy both RMDs. 
  • Since you can no longer utilize NUA, you should do a final direct rollover of the shares to your IRA. or sell the shares within the 401k and roll over the cash. Your 2020 plan RMD will have to be distributed before rolling over the balance to an IRA.
  • Unless your NUA cost basis was very low this will not be costly. To the extent it is less than 25% of the current share value, it might cost you in the long run. But now you can diversify out of these shares sooner rather than later. 


Submitted by Arun SHAH on Thu, 2020-01-23 02:35

I didn’t rollover the RMD from 401k plan. I  transfer pension fund to rollover IRA.I am not sure pension rollover to IRA is also consider as “intervening distribution” or not.Please reply.



Submitted by Alan - IRA critic on Thu, 2020-01-23 03:57

A DB pension plan does not affect your 401k or lump sum distributions. Is the AEP pension plan a defined benefit plan?  The minimum distribution without NUA in 2019 is from which plan?



Submitted by Arun SHAH on Thu, 2020-01-23 19:09

I took minimum distribution from 401K plan only. Alao I tranfered roth 401k to roth IRA. AEP bebefit plan is employer plan. Either we get Annuity (various) or Lumpsum amount after retirement 



Submitted by Arun SHAH on Thu, 2020-01-23 19:11

I took minimum distribution from 401K plan only. Alao I tranfered roth 401k to roth IRA. AEP bebefit plan is employer plan. Either we get Annuity (various) or Lumpsum amount after retirement Annuity is fixed amount we can get every month.



Submitted by Alan - IRA critic on Fri, 2020-01-24 00:35

  • The AEP benefit plan IS a defined benefit (DB) plan that does not affect NUA LSD requirements in any way.
  • For the 401k plan, it sounds like you took an RMD in 2019 after the first week in March. If so, that would be an intervening distribution and erase the possibility of NUA in your lifetime, as would the direct rollover to your Roth 401k to a Roth IRA. In other words, any distribution in 2019 from any portion of the 401k plan after your separation date would eliminate NUA. Either a 401k rollover or an RMD paid to you would be an intervening distribution.
  • You can always call the plan admininstrator and ask them if you qualify for an LSD in 2020 for NUA purposes, but based on your info, the answer would be No.

 



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