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Rollovers and Early Distributions

Q. Recently I had a client move funds from an optional retirement program to his 457 plan. His rollover money in the 457 plan is being segregated. If he terminates employment at age 52 and pulls this segregated money out, will it be subject to a 10% penalty as if it were a premature distribution?

A. Keeping the rollover monies in a different source is actually very important. Employer and employee contributions made to the 457 plan are not subject to the premature distribution penalty. However all other amounts that are rollover over from other than a 457 plan are subject to the penalty (based on the qualified plan rules). If the vendor or TPA does not keep the rollover separate then the entire account is tainted and everything becomes subject to the premature distribution penalty!


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