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457 Beneficiary Question

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I am the beneficiary of a private 457(b) annuity. This was a joint life with a 20 year guarantee period funded by pre-tax contributions. There are still 42 months of payments remaining. I am being given the option to take a lump sum commuted value or continue with the monthly payments. I would like to continue the monthly payments (they are fixed and have gone up every year for the past 16 years) but only if I can have the payments directly transfered to an inherited IRA which would allow me to trickle to money out and lower my taxes.

 

Does anyone know if the IRS allows this??

 

Thanks

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I am the beneficiary of a private 457(b) annuity ... I would like to continue the monthly payments but only if I can have the payments directly transfered to an inherited IRA ...

 

Does anyone know if the IRS allows this??

When you say "private" 457(b), that makes me think the company that sponsors the 457(b) plan is a non-profit company, not a government. If this plan is truly a tax-exempt organization (a not-for-profit company), then the payments are not eligible for rollover, and you do not need to read further.

 

Only a government-sponsored 457(b) plan would be able to provide such a rollover. So, if it's a government-sponsored 457(b) plan and you are the surviving spouse of the deceased participant, then you could do a rollover as described, no problem. However, if you are not the surviving spouse of the participant, then the government 457(b) plan might or might not allow the rollover to an inherited IRA. Plans are not yet required to offer that option (but they could voluntarily). Under the Worker Retiree Employer Recovery Act of 2008, it will be required (generally) for plan years beginning after December 31, 2009 (possibly later, I did not look up that effective date).

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Yes, you are correct that it is a non=profit company (a teaching hospital). Does this mean that because it is a private plan that it is not an "eligible retirement plan"? I have read through Section 829 of the Pension Protection Act of 2006 and it would seem to allow this type of transfer.

 

Thanks for your help on this.

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Not exactly. You must be referring to subsection (a)(4) of section 829 of PPA 2006, which explains how the rule applies to 457(b) plans:

 

 

PPA §829 (a) In General - . . .

 

(4) SECTION 457 PLANS- Subparagraph (B) of section 457(e)(16) of such Code (relating to rollover amounts) is amended by striking `and (9)' and inserting `, (9), and (11)'.

That's how the law was changed. Not very telling. We need to look at all of IRC 457(e)(16) to see its meaning, now that it has been changed:

 

 

457(e)(16)(B) CERTAIN RULES MADE APPLICABLE. --The rules of paragraphs (2) through (7), (9), and (11) of section 402(c ) and section 402(f) shall apply for purposes of subparagraph (A).

That's still not very helpful, so let's see what subparagraph (A) tells us:

 

 

457(e)(16)(A) GENERAL RULE. --In the case of an eligible deferred compensation plan established and maintained by an employer described in subsection (e)(1)(A), ...

Now we're getting close. Let's look at (e)(1)(A) to see what kind of employer this applies to:

 

 

457(e)(1)(A) a State, political subdivision of a State, and any agency or instrumentality of a State or political subdivision of a State, ...

I call that a "government employer". You have now left a maze of twisty passages - congratulations!

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Not exactly. You must be referring to subsection (a)(4) of section 829 of PPA 2006, which explains how the rule applies to 457(b) plans:

 

 

PPA §829 (a) In General - . . .

 

(4) SECTION 457 PLANS- Subparagraph (B) of section 457(e)(16) of such Code (relating to rollover amounts) is amended by striking `and (9)' and inserting `, (9), and (11)'.

That's how the law was changed. Not very telling. We need to look at all of IRC 457(e)(16) to see its meaning, now that it has been changed:

 

 

457(e)(16)(B) CERTAIN RULES MADE APPLICABLE. --The rules of paragraphs (2) through (7), (9), and (11) of section 402(c ) and section 402(f) shall apply for purposes of subparagraph (A).

That's still not very helpful, so let's see what subparagraph (A) tells us:

 

 

457(e)(16)(A) GENERAL RULE. --In the case of an eligible deferred compensation plan established and maintained by an employer described in subsection (e)(1)(A), ...

Now we're getting close. Let's look at (e)(1)(A) to see what kind of employer this applies to:

 

 

457(e)(1)(A) a State, political subdivision of a State, and any agency or instrumentality of a State or political subdivision of a State, ...

I call that a "government employer". You have now left a maze of twisty passages - congratulations!

 

 

If I look at the entire section of IRC 457 I get:

 

(e) Other definitions and special rules. For purposes of this section--

(1) Eligible employer. The term "eligible employer" means--

(A) a State, political subdivision of a State, and any agency or

instrumentality of a State or political subdivision of a State, and

(B) any other organization (other than a governmental unit) exempt from

tax under this subtitle.

 

It appears to me that part (B) includes other tax exempt orginizations such as hospitals. Am I wrong in this? I know that the tax code is a foreign language but it is still based on english.

 

EDIT:

Okay. I looked a little further and saw that rollovers cited in section (e)(16)(A) are for those entities described only in section (e)(1)(A)

 

You were right about the maze.

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Yep. That's pretty impressive that after going back into the labyrinth, you were able to emerge again - having not gone blind or mad by reading the writings therein.

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