Lump Sum Distribution or LSD

Example:

An employee is a participant in his employer's combined 401k plan and profit sharing plan and separate pension plan.

401k and profit sharing plan

The 401k plan and profit sharing plan balances must be aggregated for determining the balance to the credit of the employee for lump sum distribution purposes since they are both of the same type.

Pension plan

The pension plan is not aggregated since pension plans are of a different type of plan.

To qualify as a lump sum distribution or LSD, the retirement plan distribution must be the first distribution from the plan as a result of a triggering event.

The triggering event and the first retirement plan distribution do not have to occur in the same year.

The lump sum distribution or LSD need not be made all at once; the account merely must be emptied by the end of the calendar year.

An employee may experience more than one triggering event. He/she has the opportunity to take a LSD after any triggering event regardless of any retirement plan distributions he/she might have taken prior to the new triggering event.

Example:

In Year 1, an employee turns 59½ (considered a triggering event under the terms of the plan).

She takes a retirement plan distribution out of her 401k but does not empty the 401k retirement account by the end of the year.

In Year 2 she cannot make lump sum distribution / LSD from her 401k for being 59½ because she took a 401k distribution in Year 1 under that triggering event.

In Year 3 she retires (another triggering event).

Now she can empty her 401k and receive NUA treatment, regardless of the previous non lump sum distribution / LSD distribution that she made in Year 1.