Can you rollover an IRA to a 457 deferred comp plan?
Can you rollover an IRA to a 457 deferred comp plan? Is a qualifying event necessary? I have a client that would like to access funds prior to age 59 1/2 without having to take a 72t distribution. If he can rollover his IRA to his deferred comp plan we could access the funds. He is no longer employed with the employer that offered the deferred comp plan.
Permalink Submitted by Alan Spross on Tue, 2011-05-17 16:31
This can be done without any qualifying event if the plan otherwise allows it AND it is a government 457 plan. Only pre tax IRA dollars can be rolled to the plan, no non deductible contributions. I highly doubt that such a plan would accept rollovers from a former employee, but it does not hurt to ask.
Unlike most plans that absorb such rollovers into their balance, a receiving 457 plan must account separately for the IRA funds. If these IRA funds are withdrawn from the 457, they are subject to an early distribution penalty, whereas the basic 457 assets are not. As such, it appears that the rollover will not accomplish the client’s purpose even if the 457 plan accepted the rollover. The following is a copy of Sec 72(t)(9) that addresses this (an IRA is included in Sec 4974(c)):
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(9) Special rule for rollovers to section 457 plans
For purposes of this subsection, a distribution from an
eligible deferred compensation plan (as defined in section
457(b)) of an eligible employer described in section 457(e)(1)(A)
shall be treated as a distribution from a qualified retirement
plan described in 4974(c)(1) to the extent that such distribution
is attributable to an amount transferred to an eligible deferred
compensation plan from a qualified retirement plan (as defined in
section 4974(c)).
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Permalink Submitted by Drew Culhane on Thu, 2011-05-19 08:12
Phillip,
Depending on the specific rules of the governmental 457b plan you may be able to roll the ira money over to the plan under 3 conditions
1. The plan must allow for direct rollovers of conduit iras/rollover ira’s into the plan Also the ira should have only been funded by rollover funds from a qualified retiremenet plan or pension or another rollover ira. No personal contributions to the ira even though they may have been tax deductible the plan may ask for years and years of statements to verify all the info and it wont be worth the hastle .
2. The plan also has to allow for rollovers into plan after seperation or retirement. In my experience some of the only plans I have ever seen that allow you to roll money in after seperation have been governmental 457b plans which certainly helps your cause.
3. If the person is retired what would the benefit be of rolling the money into the 457 with the old employer?? There is typically no additional tax benfit on the moneys rolled over to the 457 plan unless the state has a specific state income tax exemption for certain employees that appply to assets contributed to the plan and also apply to to the rollover money. Which again in my experience I know of one state that has 2 plans that offer this and the benefit to rollover % in after retirement so if you live in this state or your client does that is a wonderful solution from an income tax perspective.
Hope this helps!
Good Luck