Can I Use My NUA in Stock to Satisfy My RMD?
By Sarah Brenner and Beverly DeVeny
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This week's Slott Report Mailbag tackles a consumer's intricate 60-day rollover situation as well as a question on using net unrealized appreciation to satisfy a required minimum distribution (RMD). As always, we recommend you work with a competent, educated financial advisor to keep your retirement nest egg safe and secure. You can find one in your area here.
I am aware of the 60-day rollover rule that was changed from once per account per year to once per Social Security number within a 365-day period. Since the change, I do everything possible to avoid them; however, I am in the midst of one now. I took the free allowed 10% from an annuity I use only for the bonus and higher interest rate vs. money markets and CDs. Annuity money represents the small amount that I do not want to be in stocks. The plan was to take the 10% the day prior to the contract's anniversary date (a check made out to me) and then open a new annuity doing a direct transfer of the new 10% that became available after the anniversary date plus the 10% already taken.
My broker was informed that American Equity, who welcomed these types of moves changed its policy in March and will not allow a transfer from contract A held with them to a new contract B opened with them. The plan is to open a new annuity with them with funds sitting in a brokerage money market via a direct custodian-to-custodian transfer and then have the brokerage secure the 10% currently available in annuity A to replenish the funds at the brokerage via a similar transfer.
My question is can I, if I decide to, write a check for initial 10% that was a 60-day rollover back to American Equity? When I read about the case that was the cause for the law change, one of the things that annoyed the court was that the money was rolled from Fidelity to Fidelity. Is a 60-day rollover from trustee A back to trustee A legal?
As you noted in your question, there is a stricter rollover rule when you do receive the IRA funds. The once-per year rollover rule limits you to rolling over only one distribution you receive from any of your IRAs in a one-year period. Here is some good news. There is nothing in the rule that prohibits you from doing your one rollover back into the same IRA from which you took the distribution.
Now for the bad news. You cannot mix your personal funds with your retirement funds. You cannot advance funds from your brokerage account to an IRA and replace the brokerage funds with a later distribution from an IRA. That is a prohibited transaction, subject to income tax, the 10% early distribution penalty, if applicable, and the excess contribution penalty of 6% per year until the funds transferred from the brokerage account to the IRA are removed from the IRA.
Thank you for answering the question about a lump-sum distribution of employer stock and using the cost basis of the stock to satisfy RMDs for two years (70 ½ year and following year). Is it also true that the NUA of the stock in this distribution can be used to meet the RMDs? In other words, can the total value of the stock (cost basis plus NUA) that is distributed to a taxable account be used to satisfy the RMDs?
NUA can be a valuable strategy but there are some limits. Unfortunately, while you can use the cost basis of company stock distributed from a company plan to satisfy your RMD for the year, the NUA on that stock cannot be used. Here is a list of 11 NUA don'ts.
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