457(b) rollovers
Hi . . .
I have a client who has ceased working at a (tax exempt) hospital. He wants to rollover his 457(b) into his personal IRA. But we are told that is not permitted, because the 457(b) is with a private tax exempt organization, and rollovers are only permitted from “public” 457(b) plans..
Is it legal for me to do the following “work around”.
I would have him take his account balance as a distribution, without tax withholding, and then desposit the proceeds into his IRA account within 60 days.
Yes, this workaround defeats the IRS guidance on 457b to IRA rollovers, but it is legal?
Will it be OK, or blow up later?
Thank you for your thoughts,
KS
Permalink Submitted by Alan - IRA critic on Thu, 2021-03-18 22:01
If the hospital is a non govt entity, any distribution is not rollover eligible. If the balance is accepted as a rollover contribution by an IRA custodian, it is an excess IRA contribution and would result in a 6% annual excise tax for which there is no statute of limitations. The 457 1099R would also be taxable in the year distributed.