Do I qualify for NUA?

[Guest Steve Richards]

Do I qualify for NUA treatment from my 401k?

Here is my situation:

My client retired in 2003 at age 55 and was in four plans at that time. She took a lump sum distribution from the retirement plan and rolled it over to an IRA. She elected a deferred distribution from the severance plan and the supplemental retirement plan. She retained her 401k. She has taken partial distributions and dividend distributions from her 401k in the past. She will not take any partials in the future. She will turn age 59.5 in late 2007. Immediately after that (early in 2008), she wants to take a lump-sum distribution from her 401k, take the company stock in-kind, and claim NUA. Will she qualify?

Will her past partial distributions disallow her from claiming NUA even though she will do the lump-sum after turning 59.5? Will her previous participation in “other plans” disallow her from claiming NUA from her 401k?

Thanks,

[BeckyMiller]

You might consider doing a search through PLRs on this topic. I realize that you cannot rely on a PLR, but the logic that the government applies in reaching a holding will give you insight, since otherwise there is very little guidance on this rule.

[Guest Harry O]

Yes, your client would qualify for NUA treatment on these facts. But make sure in advance that the employer will report the distribution as NUA eligible on the Form 1099-R. You don't want to get surprised if the employer mistakenly takes a different position and issues you a 1099-R that makes life difficult.