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Guest MikeAIGFA

409a distribution

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Guest MikeAIGFA

We have a client who has a Rabbi Trust. A key person has approximately 6.5 million and is now fully vested. However, they plan to work for the next 1.5 years. After 1.5 years the income will drop significantly. They would like to have the money rolled out now however postpone tax on the distribution.

Is there a way to do this?

Thank you,

Mike

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If I understand what you're saying, it sounds like you want to either distribute the money now or place it in an employee trust now, but postpone the taxable event. There's never been any way to do that and unless the tax code gets repealed, there won't ever be any way to do that.

If there's any grandfathered funds, you can have the terms of the plan pre-409A apply to the payment, or you could use the transition rule to pay the money out next year and have it taxed in 2009

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Guest MikeAIGFA
If I understand what you're saying, it sounds like you want to either distribute the money now or place it in an employee trust now, but postpone the taxable event. There's never been any way to do that and unless the tax code gets repealed, there won't ever be any way to do that.

If there's any grandfathered funds, you can have the terms of the plan pre-409A apply to the payment, or you could use the transition rule to pay the money out next year and have it taxed in 2009

Thanks Steeler fan....Mike

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I agree with Steeler fan, except you must be very careful in using the 2008 transition rule...you can elect to pick another date of distribution in the future, but only if the amount was not otherwise supposed to be paid in 2008 under the terms of the existing agreement. And you must amend the current plan to provide for use of this rule.

Rolling out now and paying taxes later sounds like just the sort of think 409A was trying to prevent.

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Guest MikeAIGFA
I agree with Steeler fan, except you must be very careful in using the 2008 transition rule...you can elect to pick another date of distribution in the future, but only if the amount was not otherwise supposed to be paid in 2008 under the terms of the existing agreement. And you must amend the current plan to provide for use of this rule.

Rolling out now and paying taxes later sounds like just the sort of think 409A was trying to prevent.

Does anyone have any suggestions as to where to find more information on the transition rule?

Thanks for the input everyone.

Mike

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