Constructive Receipt: Election to defer

[Guest RW]

A nonqualified plan has two distribution options upon retirement or separation from service: annuity payments and a lump sum. When is the latest that a participant may make an election for the annuity without violating the constructive receipt rules?

[Guest]

The most conservative view is that you must decide before the year in which you've earned the money (60-31 rev rul I think). The most agressive is that you can change your mind the day before you take it, especially if it's from a mirror plan. The IRS doesn't favor the latter.

[BeckyMiller]

See the Martin case, 96 TC 814, Filed June 18, 1991 for a discussion of some favorable facts and conclusions. See also the Tax Management portfolio on this issue, number 385 page A-12(1)

[Guest]

IMHO, I've found the Martin case almost indecipherable! It freely mixes economic benefit concepts with constructive receipt theory. I've always been a little shy about citing this as well-reasoned authority.

You may want to look at the section 457 regs which apply constructive receipt theories to these plans. They are fairly liberal in terms of allowing last minute elections.