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Withdrawal from a 457 plan not subject to the 10% Early Withdrawal Penalty

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Level 1

I have a client who is in his early 50's and would like to withdrawal money out of the gov't 457 plan.  Researching the IRS site the 10% penalty doesn't apply.   How is this reported at tax time?  1099-R and if so what is the code in box 7?  Do I have to make adjustments on form 5329?

Any assistance would be appreciated, especially if you have come across this situation in the past.

Thanks

GC

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3 Replies 3
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Level 12

You haven't said why the penalty won't apply, so it's impossible to say for sure.  But most likely it will be code 1 on the 1099-R and you need to enter the reason why the penalty does not apply on the 5329.

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Level 12

"How is this reported at tax time?"

By the plan manager or the account manager.

"1099-R and if so what is the code in box 7?"

See the codes here:

https://twonline-19.taxwise.com/Help/WebHelp/Content/IRS%20Codes/English/Miscellaneous_Codes/1099R_C...

See the tax topic here:

https://www.irs.gov/taxtopics/tc558

We don't know if this person still works there or not, has any other funds that were rolled into that plan or not.

"Do I have to make adjustments on form 5329?"

"In general, an eligible state or local government section 457 deferred compensation plan isn't a qualified retirement plan and any distribution from such plan isn't subject to the additional 10% tax on early distributions. However, any distribution attributable to amounts the section 457 plan received in a direct transfer or rollover from one of the qualified retirement plans listed above would be subject to the additional 10% tax."

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Level 10
Level 10

Don't forget that all distributions from a 457 is taxable income, but like everyone said no 10% penalty, also you have to start taking distributions at 72.