Grand-fathered Deferred Compensation Plan
Can someone explain the difference between a “non-profit” Grandfathered Deferred Compensation Plan….and….a Non-profit Non-Governmental 457(b) Deferred Compensation Plan. We have a client that has a deferred comp. plan valued at around $106k and we’re afraid he cannot rollover into an IRA, thus deferring the taxes. He is still employed with the firm but is enrolled in the 401K plan that is offered. Can either of these plans be rolled?……………Thanks
Permalink Submitted by Joseph Arsenault on Tue, 2010-12-28 19:52
457(b) governmental plans may be rolled over to IRAs. 457(b) tax-exempt plans are not permitted to allow rollovers except into the like-kind 457(b) plans. 401k plans can be rolled at 59 1/2 (per plan docs having the provision) or when there is a severance of employment. There is also an exception for non-elective contributions (usually certain types employer contributions) to be rolled over early if the plan allows.
Based on your info, the 401k can be rolled at some point, but not the 457(b). Only the government 457(b) plans are eligible for rollovers to IRAs.
Permalink Submitted by James Rosato on Tue, 2010-12-28 21:32
How would you define “non-profit” Grandfathered Deferred Compensation Plan?….i.e. is it possible it will allow a rollover to an IRA, as it is “grandfathered”?
Permalink Submitted by Joseph Arsenault on Tue, 2010-12-28 21:43
The first question would be, is the entity sponsoring the plan a government entity? If no then the client probably is not eligible for rollover. When I think of grandfathered I think of pre-1986 plans. From your understanding, what was the plan before?
Permalink Submitted by James Rosato on Tue, 2010-12-28 22:09
It is not a government program but a Country Club. The plan was established back in the mid-70’s. Does the “grandfathered” mean it can be rolled?
Permalink Submitted by Alan Spross on Tue, 2010-12-28 22:14
No, the grandfathered status does not mean that the plan can be rolled over to an IRA. It means that the plan existed at the end of 2004 when certain IRS Regs went into affect on these plans, but those Regs did not change the rollover status either way. Those plans were not eligible for rollover either before or after the grandfather date.
Permalink Submitted by Joseph Arsenault on Tue, 2010-12-28 22:15
The answer to that in my opinion is no.
Sorry.
Permalink Submitted by Joseph Arsenault on Tue, 2010-12-28 22:18
Alan,
Based on your comment, were the Regs change in 04 specific to 457s that you are referencing?
Permalink Submitted by Alan Spross on Tue, 2010-12-28 23:20
Joe,
No, they excluded 457b plans but included other deferred comp plans, but did not affect the rollover issue either way:
http://www.prudential.com/media/managed/NQDC_PruPA_Final.pdf