IRA distribution indirect to 457 deferred compensation
I have a client (under 59 1/2) that rolled over his retirement plan 12 months ago into a fixed rate annuity. That annuity has a 10% free withdrawal provision. His agent instructed him to take the 10% distribution and find another investment for it due to low renewal rates. He would like to contribute to his 457 deferred comp plan with his employer. Is it possible to “indirectly” roll money out of an IRA and into his 457 plan or does he have to create another IRA account to direct those funds towards? I am also guessing it must all be completed within 60 days.
Permalink Submitted by Alan - IRA critic on Tue, 2014-09-30 21:33
It could be done by direct rollover into the 457 (or 60 day rollover), but only if the 457 will permit rollovers from IRAs. Note that even though the 457 plan is exempt from the 10% early distribution penalty, IRA funds rolled into the 457 will not receive this exemption and must be tracked separately by the 457. If distributed before 59.5, the portion of the 457 attributed to the IRA will be subject to penalty.