457(b) IRS rules verses Plan Document
Client has one large and one smaller 457(b) plans. The IRS allows a 457(b) to be rolled-over to an IRA, however the plan document (Valic) — “only permits tax-free transfers into other 457(b) plans”
Is there any way around such a restriction? Such as can the client take a lump-sum distribution and do a 60-day roll-over to an IRA?
If so, as there are two seperate accounts can each be rolled into seperate IRA’s and still be within the (new) one-per 365 days rollover rule?
Is there any way to get the custodian to reduce tax withholdings (apparently they us W4 withholding since deferred comp and not 20% as typicall for a 401k)?
Permalink Submitted by Alan - IRA critic on Tue, 2014-07-29 22:05
Only a government sponsored 457b can be rolled over to an IRA. A non govt 457 cannot be rolled over so the plan document you are looking at is very likely that of a non govt plan, and there is no way to get those funds into an IRA. The withholding % is yet another indicator of a non govt plan because the 20% rate only applies to eligible rollover distributions, so use of a different rate indicates the plan is not eligible for a rollover and therefore distributions will be taxable at the marginal rate of the employee. Client might inquire about taking partial distributions over a few years to lessen the tax impact.
Permalink Submitted by Stephen Csenge on Wed, 2014-07-30 16:48
Thank you. Missed the detail on ONLY governent sponsored 457b’s. This entity is a non-profit hospital.Just a follow-on; since the distributions are W4 taxed, can they be considered “earned-income” and thereby permiting an IRA contribution? In this case the client is over age 70 so that may be a mute point but in other cases it might be helpful.
Permalink Submitted by Alan - IRA critic on Wed, 2014-07-30 19:21
If distributions are reported on a W-2, Box 1 less Box 11 is considered earned income for IRA contribution purposes.