Editor’s Note: This is an occasional feature in the NTSA Advisor. It is drawn from The Source, a book that covers technical, compliance, administrative and marketing aspects of the 403(b) and 457(b) markets. More information about The Source is available here.
Tip of the Week concerns issues to consider about rollovers from qualified plans, 403(b)s and IRAs to 457(b) governmental plans.
When considering rollovers of other plan types to 457(b) governmental plans, it is important to determine whether the rollover is suitable for the participant. Consider the following:
- Amounts rolled into a 457(b) governmental plan must be segregated and separately tracked because the IRC §72(t) 10 percent premature distribution penalty tax will continue to apply to the amounts rolled into the plan.
- Under Rev. Rul. 2004-12, the amount rolled over will not be subject to withdrawal restrictions under the 457(b) plan, if so stated in the plan document and if separately tracked.
- Rollovers from IRAs will cause the participant to lose the ownership and control of those assets because governmental 457(b) plan assets are held in trust for the benefit of participants and beneficiaries. Individuals must be familiar with the rules of the 457(b) plan sponsor to gain a comfort level with the terms of the new plan.
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