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Taxation of 457 plan benefits


Guest Tom Collins
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Guest Tom Collins

I am struggling with what appears to be an issue not addressed under 457 or the regulations thereunder. Specifically, how do you value an ineligible non-account (defined benefit) plan for FIT purposes when plan benefits are no longer subject to a substantial risk of forfeiture and where such benefits are not "reasonably acertainable" as the final benefit is based upon final pay and years of service with the sponsoring employer. There is a delayed accounting rule for FICA and FUTA purposes set forth in Reg. 31.3121(v)(2)-1(e)(4) which provides that benefits are subject to FICA or FUTA until they are "Reasonably acertainable." Unfortunately, there is no counterpart for FIT purposes. Any ideas?

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Tom

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Guest CVCalhoun

Good luck with this one! You're right that the "reasonably ascertainable" standard applies only for purposes of FICA and FUTA, not federal income taxes. See, Technical Advice Memorandum 199903032 (October 2, 1998). What is particularly ironic is that it appears under the TAM to be the job of the employee, not the employer, to do the valuation. Under the TAM, the employer is not required to withhold income taxes before the year the plan makes a distribution, even though employees are subject to income taxes as soon as they become vested.

You can click here to see an article I wrote about the TAM, which is truly bizarre.

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Employee benefits legal resource site

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Guest Tom Collins

Thanks for your assistance in pointing out the TAM. I agree that the Service's position is somewhat nonsensical, i.e., how can the participant be expected to value an otherwise non-ascertainable future benefit for FIT purposes? Thanks again.

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