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Pat L

457(b) Distribution Tax Requirements

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The current 457(b) has contributions from the following sources:

1. Employee payroll deferral

2. Employee rollover from required refund of 401k ADP/ACP Testing

3. Employer contribution based on percentage of employee salary

 

Question

At the time of distribution, which is processed through payroll,

What taxes must be deducted/paid by the former employee ?

What taxes are the employer required to pay?

 

(in this case distribution is based on termination of employment and employee is 100% vested in all contributions) .

 

 

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Based on the reference to 401(k) adp/acp testing, it's understood that this is a 457(b) top-hat plan for a 501© tax-exempt organization and not a governmental 457(b) plan.

 

If the 457(b) plan contributions were reported and handled correctly, the distribution amount should be reported through payroll on the employee's W-2. The distributed amount should be included on the W-2 in box 1 & 11 (excluded from box 3 & 5). The tax withholding should be done in accordance with the employee's most current W-4. The employer is not required to pay any additional taxes on the distribution. The employer should have already paid their portion of FICA on all of the 457(b) plan contributions (including any employer contributions) when the contributions were made.

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Based on the reference to 401(k) adp/acp testing, it's understood that this is a 457(b) top-hat plan for a 501© tax-exempt organization and not a governmental 457(b) plan.

 

If the 457(b) plan contributions were reported and handled correctly, the distribution amount should be reported through payroll on the employee's W-2. The distributed amount should be included on the W-2 in box 1 & 11 (excluded from box 3 & 5). The tax withholding should be done in accordance with the employee's most current W-4. The employer is not required to pay any additional taxes on the distribution. The employer should have already paid their portion of FICA on all of the 457(b) plan contributions (including any employer contributions) when the contributions were made.

 

 

I dont understand what is meant by a "rollover" since rollovers are not permitted in NP 457 plans.

 

I think the question is if the employee gets a refund of 401k contributions paid to him as includible comp can the funds be contributed to a 457 plan. Under IRS regs the excess 401k contributions must be included in comp. I dont know if the employee is allowed to contribute them to another program. You need to check the regs. Also if excess contributions from a 401k plan returned to the employee are contributed to the 457 plan are FICA taxes supposed to be withheld again?

 

Also since all 457 contributions are pre tax all distributions are taxable.

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.

 

If the 457(b) plan contributions were reported and handled correctly, the distribution amount should be reported through payroll on the employee's W-2. The distributed amount should be included on the W-2 in box 1 & 11 (excluded from box 3 & 5). The tax withholding should be done in accordance with the employee's most current W-4. The employer is not required to pay any additional taxes on the distribution. The employer should have already paid their portion of FICA on all of the 457(b) plan contributions (including any employer contributions) when the contributions were made.

 

 

I dont understand what is meant by a "rollover" since rollovers are not permitted in NP 457 plans.

 

I think the question is if the employee gets a refund of 401k contributions paid to him as includible comp can the funds be contributed to a 457 plan. Under IRS regs the excess 401k contributions must be included in comp. I dont know if the employee is allowed to contribute them to another program. You need to check the regs. Also if excess contributions from a 401k plan returned to the employee are contributed to the 457 plan are FICA taxes supposed to be withheld again?

 

Also since all 457 contributions are pre tax all distributions are taxable.

 

 

"Rollover" is an incorrect Term. I was referring to 401k contributions returned to the employee, that were then contributed to the 457b as pretaxed. What are the tax deduction requirements at distribution?

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