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Pete is a CFP® professional. John is the administrator of his company's profit sharing plan. John tells Pete that Gary, age 55, a long-time employee of John's company, has retired and will soon receive a sizeable lump-sum distribution from the company's profit-sharing plan. Gary's current profit-sharing account balance is $500,000, funded 100% with employer securities with an employer basis of $100,000. Gary has asked for John's input on a rollover for the distribution. John has asked Pete for the necessary paperwork to establish a rollover IRA and informs Pete he will complete the paperwork with Gary and return it to Pete within a few days. Which of the following regarding distributions from Gary's profit-sharing plan is(are) CORRECT?

1. Because Gary has not yet attained age 59½, a distribution from the profit-sharing account that is not rolled over will be taxed as ordinary income and penalized an additional 10%.

2 If Gary makes a NUA election for a lump-sum distribution, because 100% of the account is invested in employer securities, all distributions are eligible for capital gain tax treatment.

3. A NUA election for the lump-sum distribution would allow Gary to have long-term capital gain tax treatment on the subsequent sale of the employer securities as long as he holds the securities more than one year from the date of the lump-sum distribution.

4. If Gary decides to distribute a portion of his profit-sharing account on January 1 and the remaining portion six months later, he will forfeit his ability to make a NUA election because the first distribution was not his entire account balance.