Non-Qualified Deferred Comp Plan Under Sec. 409A

The plan I’m in is asking me for a starting distribution date as soon as 1/1/09 which I can take since I’m 55 and in the plan for at least 5 years. The distribution options are in the form of different payout options including Lump Sum. If I take a lump sum can I roll it over to an IRA? I do not need the income now. The company said it can not be transferred trustee to trustee. Advice needed on this. Thanks.

It depends on the kind of Deferred Comp plan you’re speaking of.

True Deferred comp plans, such as Excess Benefit Plan or SERPs, are assets of the employer that become available to you once you’ve separated from service in accordance with the Deferred Comp plan, which it sounds like you’re describing. These may not be transferred to your IRA, as they are not qualified retirement plans, SEPs or SIMPLE plans. They are distributed to you usually over a period of years as ordinary income. This also includes 457(b) of a non-profit organization or 457(f) plans.

However, if this is a 457(b) funded Governement plan, this may be rolled over to your IRA….but if you do, you’ll lose the ability to make pre 59.5 withdrawals without the 10% penalty.


This is a 409A plan as clearly stated in all their paperwork. To comply with current rules they are asking me how I want the money paid to me and when. I earned commission with an insurance company and contributed a percentage that I agreed to put in the plan, reducing my reportable income from that company. This is not a 457 plan.

All 409A plans are required to make changes to conform with the regulations as of 12/31/08 – that’s why you’re being asked about this now. The 409A plan is nonqualified deferred compensation and cannot be rolled over to any qualified plan – including an IRA.

If the plan changes are not made the entire balance will be taxable to you. You should talk to someone knowledgeable about the specific plan to see what your best choice would be. In many cases, no distributions are available until you separate from service. The rules are designed to get away from people having ready access to the deferred funds.

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