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Taxation (distribution)


Dobber

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I received an inquiry regarding taxation of distribution (more specifically ways to defer taxation) from a non qualified deferred comp plan (409a) - I have limited experience working with these plans.   However, I have what I think is a straightforward question 

What strategies are available (if any) to defer taxation from a plan distribution?  I am aware a IRA rollover is not permitted. 

Thank you in advance

 

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fmsinc is 100% correct.  However, in addition to his/her advice, there are ways to delay taking the distribution, if you plan allows it.

Under the rules for "subsequent deferral elections," you can (if your plan allows) defer the date you are to receive a distribution as long as:

(1) you make the subsequent deferral election at least a year prior to the date the distribution otherwise would have occurred, and

(2) you delay your distribution at least 5 years from the date the distribution otherwise would have occurred.

The above is a very general description of the subsequent deferral election rule, and there are lots of ins and outs.  

To summarize:  (1) fmsinc is right -- if you receive the distribution, you are going to be taxed.  You cannot further delay taxation.  But, (2) there are ways (see above) that you can delay receiving the distribution, which would further delay taxation.

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