Advanced Underwriting Consultants

Question of the Day – June 13

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers.  Here’s the question of the day.

Question: A 45 year old customers is employed by a governmental agency that sponsors a 457(b) deferred compensation plan for its employees.  The employee has not contributed to the plan for the past two years, and has been told that she is entitled to an in-service distribution.  Is that correct?

Answer: Probably.

Under normal circumstances, participants in a 457(b) plan may not access the plan amounts earlier than

(i) the calendar year in which the participant attains age 70 1/2,

(ii) when the participant has a severance from employment with the employer, or

(iii) when the participant is faced with an unforeseeable emergency.

However, if a participant has not contributed to the plan in the prior two years—and the amount to be distributed is $5,000 or less—the account may be distributed to the participant.  This special provision is available only if the 457(b) plan document permits the distribution, and the participant has not used it with regard to the account sponsored by the government employer in the past.

Have a question for the professionals at AUC?  Feel welcome to submit it by email.  We may post your question and the answer as the question of the day.