Jump to content
anitje

Ira Contribution With 457(B) Distribution

Recommended Posts

Hi.

 

I had a nongovernmental 457(b) plan. I retired in 2008. My prior employer forced me to liquidate the plan in January 2011, and I received the proceeds as a lump sum in January, 2011. I paid taxes on this sum in 2011.

I received a W-2 for 2011 listing the proceeds in Box 1 ("wages, tips, other compensation"). This number is also listed in box 16 ("state wages, tips, etc"), and there are entries for federal tax withheld in box 2, and state income tax in box 17. All other boxes on the W-2 list zero.

 

Two questions:

 

1. Can I legally contribute to an IRA (tax-deductible) for 2011 based on my W-2?

2. If I do contribute to an IRA for 2011 based on my W-2, will the fact that I have documented compensation on my W-2, but no documented social security tax withheld, put me at high risk for an audit?

 

Thanks in advance.

Share this post


Link to post
Share on other sites

The general limit on the amount of an IRA contribution is the smaller of $5,000 ($6,000 if age 50 or older) or taxable compensation. Taxable compensation includes wages, salaries, commissions, self-employment income, and other items. It does NOT include items such as pension or annuity income or deferred compensation. Since payments from a 457 plan are in the excluded group, it would be my opinion that you could not legally contribute to an IRA, based on the distribtion from your 457 plan.

 

As a matter for your information, your former employer erred in reporting the 457 distribution on Form W-2. The instructions for Form 1099-R clearly state that distributions from a 457 plan are to be reported on that form and not on Form W-2.

Share this post


Link to post
Share on other sites

Michael- Thanks for the reply.

 

I assume what you are saying is that my 457 distribution is considered deferred compensation, and on that basis I probably cannot make an IRA contribution. That makes sense to me.

 

As for the reporting error that you describe, could that come back to haunt me (since no SS tax was reported withheld on the W-2)? I assume that I would not have any SS tax liability, since I maxed out my SS contributions in the years I worked. But I don't want to run into problems with the IRS or the SS board. Do I need to demand that the former employer correct their error and substitute a 1099-R for the W-2? I don't really care if a mistake was made, unless that mistake will somehow affect me personally.

 

Would contributing to my IRA based on what was reported on the W-2 while not paying SS for the year likely raise a red flag and potentially trigger an audit or result in a penalty?

 

Thanks.

Share this post


Link to post
Share on other sites

Actually, I checked and I believe my employer probably used the right form. This from the IRS web site http://www.irs.gov/instructions/i1099r/ar02.html: "Nonqualified plans. Report any reportable distributions from commercial annuities. Report distributions to employee plan participants from section 409A nonqualified deferred compensation plans including nongovernmental section 457(b) plans on Form W-2, not on Form 1099-R; for nonemployees, these payments are reportable on Form 1099-MISC. Also, report distributions to beneficiaries of deceased plan participants on Form 1099-MISC."

Share this post


Link to post
Share on other sites

anitje,

 

You are correct: Distributions from non-governmental plans are, indeed, reported on Form W-2, not Form 1099-R. I failed to recongnize that you were covered by a non-governmental plan, even though you stated so in your initial post.

 

I apologize for the oversight.

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

×
×
  • Create New...