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457 Plan Withholding & Employment Tax Implications?


Guest Don Hughes
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Guest Don Hughes

I'm preparing a grid detailing the withholding and tax treatment of retirement plans. Regarding 457 plans, does anyone know the specific IRC Sections which exclude from FIT the employee and (separately)the employer contributions (the salary reduction and the er contribution)?

Also, while government employees are exempt from FUTA, would these contributions otherwise be subject to FUTA?

And finally, I understand that distributions are not subject to 3405. How are they treated and reported?

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Section 457(B) is the source for the FIT exemption for employer contributions. "Employee" contributions must be treated as employer contributions in order to be eligible for the exemption. This is typically done by having the employer make the contribution, but by lowering the employee's salary, pursuant to a salary reduction agreement, by the exact amount of the contribution.

With regard to FICA and FUTA consequences, see I.R.C. §§ 3121(v) and 3306(u). With regard to income tax withholding, the reason the amounts are not subject to 3405 withholding is because they are treated as wages, subject to income tax withholding. (The normal exemptions for benefits under qualified and 403(B) plans do not apply to 457 plans.) The income tax withholding (unlike the FICA and FUTA withholding) occurs when benefits are paid out, not when amounts are deferred.

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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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