457 changes?

[Guest pthomann]

Does anyone know what will happen to the 457 distribution rules if the "Retirement and Pension Act" becomes law. If my understanding of the current rules is correct, a participant in a 457 plan can begin to receive distributions from the plan without penalty at any age if they terminate employment. I have read somewhere that the rules may change to the method of other plans, whereby a participant would be assessed a 10% penalty if under 59 1/2 years old and begins to receive distributions from the 457 plan. Can anyone clarify this?

[Michael Devault]

Your understanding of the current rules is correct.

After reading section 409 of HR10, I believe that it provides that distributions will become subject to the 10% premature distribution penalty, unless one of the exceptions in section 72(t)(2) applies. Further, distributions from a 457 plan will become eligible for rollover to an IRA (currently, they can't be rolled to anything other than another 457 plan).

In short, if the new bill becomes law, distibutions from 457 plans will be treated like distributions from other types of retirement plans.

Hope this helps.

[Carol V. Calhoun]

By the way, if you want links to information on the retirement bill (including links to the full text of the bill and committee reports), they are available by clicking here.