Leaderboard

Agree with Luke. The taxation etc of this payment is a current problem not an historic one. Put the agreement in writing now for this year etc. The amount allegedly owed for the past is too large for 457(b) (limit is $16, 500 this year) so you have the 457(f) and 409(A) rules and costs to cope with.

I would like to update my situation. I have very good news to report. Benefit Plans has paid my back benefits plus interest in full and has begun paying my monthly benefit according to my QDRO. And as you predicted, my disability plan has not come after it in any way so I'm good to go with it. I wanted to take the time to thank each and every one of you who gave me such good advice on this forum. I'm so grateful that I found this very informative source for QDRO's. I don't know what I would have done without your advice and guidance through it all. Thanks so very much. It was certainly a pleasure working with all of you. You all fill a great service in what you do. Sincerely, LAHartline

I have to admit my initial reaction to #3 above was are you required to attache a note? The answer is "yes". https://www.irs.gov/pub/irs-pdf/i1040gi.pdf Page 25 I quote: If you rolled over the distribution into a qualified plan other than an IRA or you made the rollover in 2018, include a statement explaining what you did I am willing to bet the note was missing and when the computer pulls the return when a human doesn't find the note they send the letter.

I have been here many times. Unless you use a noncompete that works (see the proposed Section 457(f) regs for the narrow circumstances where this may work), once the retired founder has a legally binding right to the payments (which may be when they are put it in writing, or, depending on the facts and circumstances, may even be now or some time in the past), she will be or was taxable immediately on the present value of the payments. The future payments will also be taxable, but offset to a great extent by her basis resulting from the large up-front tax payment (only the deemed interest resulting from the discount taken to determine present value will be newly taxable). The agreement will also need to comply with 409A (mostly, require fixed payments, which is what is contemplated anyway), or she will owe an additional 20% tax. The most compliant/practical thing to do is probably to design the agreement to pay her in cash the amount of her tax immediately, and reduce the future payments. Most of the future payments, again, will be nontaxable.

I would defend to the death the position that excluded employees are NOT "participants" and we use that position very often to structure plans to avoid needing the annual audit.