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Assuming that a governmental 457 plan has met its requirement to estab

Guest JD Colville

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Guest JD Colville

Assuming that a governmental 457 plan has met its requirement to establish a trust pursuant to IRC Section 457(g), what is the procedure for paying out a participant's account? Is the account distributed directly to the participant or to the employer who withholds any applicable income and FICA taxes and distributes the remainder to the individual? Am I correct in assuming that the establishment of the trust has not changed the nature of these distributions as compensation subject to reporting on a W-2 rather than a 1099? Does the trust withhold at the rate that the employer is withholding or at a different rate, or does it withhold at all? Finally, if the deferrals and earnings, as applicable, have not been made subject to FICA taxation under the "Special Timing Rule" of Reg. Section 31.3121(v)(2) prior to distribution, who pays the employer's portion of the FICA tax due on the distributions under the general rule of IRC Section 3121(a)? Who reports the FICA wages? If the trust reports the wages for income tax and the employer reports the wages for FICA tax, does the trust withhold the FICA taxes on the employee and submit directly or does it transfer the FICA taxes to the employer for payment with its 941 filing? If the trustee submits the FICA withholding directly, does it withhold as a separate employer (7.65/15.3%) or, if the employee's wages from the employer for the year are already in excess of the taxable wage base, at the 1.45/2.9% rate?

I presume that someone has addressed all of these issues because distributions have obviously taken place, but I have not seen anything discussing the procedures for making distributions. If this topic has been previously discussed, I apologize for taking up time and would ask that you just point me in the right direction. Thanks, Jim Colville

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