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20% withholding rule


Guest jaspers

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Guest jaspers

When does a distribution form a governmental 457 not require 20% withholding? Does the age of the participant have anything to do with it? For example, is a participant that is older than 59 1/2 subject to the 20% withholding requirement? Or is that still considered an "eligible rollover distribution."

Thank-you.

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"For example, is a participant that is older than 59 1/2 subject to the 20% withholding requirement? Or is that still considered an 'eligible rollover distribution.' "

This describes an amount that is still an eligible rollover distribution, unless an RMD is required.

If the amount paid is not eligible for a rollover, then the normal withholding applies instead of the 20% mandatory. The following cannot be rolled over:

1. Payments Spread over Long Periods. A payment cannot be rolled over if it is part of a series of equal (or almost equal) payments that are made at least once a year and that will last for:

  • a period measured by the participant's life expectancy, or

  • a period measured by the participant's lifetime and their beneficiary’s lifetime (life expectancies), or a period of 10 years or more.

2. Required Minimum Distributions (RMDs).

3. Unforeseeable Emergency Distributions. A distribution on account of an unforeseeable emergency cannot be rolled over.

4. Distributions of Excess Contributions. A distribution that is made because a legal limit was exceeded cannot be rolled over.

5. Loans Treated as Distributions. The amount of a plan loan that becomes a taxable deemed distribution because of a default cannot be rolled over. However, a loan offset amount is eligible for rollover.

If the normal withholding rules apply, then the participant may elect to not have any withholding applied (for that portion of the payment that cannot be rolled over). If the participant makes no withholding election, then an amount will be withheld (I think the Federal percent is 10%). State and local tax withholding rules vary by State and by locality.

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