Can client roll his IRA to governmental 457b def. comp plan

Submitted by Michael Lott on Wed, 2008-01-30 21:13

This question came up in a seminar today. My first thought was “not prior to 59 1/2” since the IRA carries a 10% early withdrawal penalty and the 457 doesn’t. I didn’t think the IRS would let someone get around the penalty by rolling to the 457 and then taking a withdrawal before 59 1/2. Can anyone help me out here.

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Permalink Submitted by Alan Spross on Thu, 2008-01-31 06:10

If the 457b plan will accept an IRA rollover, then pre tax amounts only can be transferred. However, as the following copy of Sec 72t(9) shows, the 457 must keep track of fund balances from the IRA, and if they are distributed prior to age 59.5 (age 55 separation does not apply), the early withdrawal penalty will apply:
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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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