Early Withdrawal Penalty for a 457(b) Distribution
We are working with an invstor who has money in a 457(b) Non-Government plan. She is 53 years old, recently terminated from the company and would like to take a lump sum distribution of her 457(b) monies. Are there any circumstances in which she would incur the 10% early withdrawal penalty for taking a distribution from this plan? Would the plan also require the 20% tax withholding on this type of distribution?
Thank you!
Saleah
Permalink Submitted by Alan Spross on Tue, 2012-10-23 22:44
There is never an early withdrawal penalty on a non qualified plan distribution, and a 457b is non qualified.
And since a non govt 457b is not eligible for rollover, the mandatory 20% withholding does not apply. Withholding is subject to the same rules as wage withholding, so the investor should file a withholding request for the amount they need to have withheld to avoid an underpayment penalty next spring.
Permalink Submitted by Saleah Harpole on Tue, 2012-10-23 22:57
Thank you Alan, very helpful information as always!
Best regards,
Saleah