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What options does a retired 457 plan participant have regarding electi


Guest misto8626
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Guest misto8626

I'm confused about the rules governing required distributions under a 457 plan when a person retires. What choices does one have?

Are sanctions imposed against an individual and the plan for not electing a distribution according to the regs?

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Actually, you've got two different questions here. The first is what the plan itself says. Even if a particular form of distribution would be legal, a plan is not required to offer it.

Second is the restrictions on distributions imposed on 457 plans by the Internal Revenue Code. Under those rules, distributions cannot be made earlier than (i) when the participant attains age 70½, (ii) when the participant separates from service, or (iii) when the participant faces an unforeseeable emergency. They must begin by the later of the April 1 of the year following the year (i) when the participant attains age 70½, or (ii) when the participant retires. There are additional, sometimes quite complicated rules regarding how fast the distributions must be made, and what happens in the event the participant dies.

The primary penalty for failing to make distributions when required is I.R.C. § 4974, which imposes a 50% excise tax on the participant for failure to take required distributions. Although in theory the plan could also lose its 457(B) status for failure to make required distributions, such loss of 457(B) status would apply only if the plan failed to correct its procedures after the IRS notified it of the problem. Treas. Reg. § 1.457-2(l).

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Employee benefits legal resource site

Employee benefits legal resource site

The opinions of my postings are my own and do not necessarily represent my law firm's position, strategies, or opinions. The contents of my postings are offered for informational purposes only and should not be construed as legal advice. A visit to this board or an exchange of information through this board does not create an attorney-client relationship. You should consult directly with an attorney for individual advice regarding your particular situation. I am not your lawyer under any circumstances.

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