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In order for a client to take advantage of the NUA strategy, he or she must be eligible to take a lump sum distribution from the qualified retirement plan in question.
By allowing this exchange, the IRS permitted the beneficiary to exchange the entire pre-tax value of the inherited annuity, rather than requiring that she take a lump sum distribution of the inherited annuity interest, pay taxes on this distribution and then purchase the replacement annuity contract with the after-tax value.
The report reveals that 55 percent of the workers who opted to receive a lump sum distribution from their employer-sponsored 401(k) plan rolled their money directly into a tax-qualified account.
Some of these retirees who have traditional defined benefit pension plans will face a decision: Start their monthly pension, or take a lump sum distribution and roll it over to an IRA?
What special tax treatment is available for a lump sum distribution from a qualified plan?
The payment was a lump sum distribution of the entire balance of Frantz's deferred compensation arrangement, which was approved by Alltel before it was spun off from Windstream, according to the proxy statement.
Planning Point: A divorcing or separating spouse who is negotiating a qualified domestic relations order and who is not yet 59V2 should weigh the relative advantages and disadvantages of (i) a lump sum distribution that can be rolled over to an IRA in his or her own name, and (ii) a series of distributions directly from his spouse's plan (if available).
To avoid current taxation, it is common for an individual receiving a lump sum distribution from a qualified retirement plan to make a tax-free rollover to a traditional IRA.
By taking a lump sum distribution, the assets in your plan are distributed directly to you, providing you with immediate access to your funds.
The advantages of receiving a lump sum distribution include
To qualify for NUA treatment, the distribution of plan assets must generally be a lump sum distribution.
In general terms, a lump sum distribution is simply a distribution of the entire qualified retirement plan balance to the taxpayer within one tax year.