defined benefit rollover into 457 plan

L1: defined benefit rollover into 457 planI am a public safety employee with a defined benefit retirement lump sum payout option. I also contribute to a qualified 457 plan. Currently, I can rollover the lump sum into the 457 plan after age 55 and can begin taking distributions without penalty or restriction. I am considering retiring when I turn 49, but am concerned about living on a fixed income for 10.5 years. I am wondering if the new law lowering the age at which public safety employees can receive defined benefit plan distributions from 55 to 50 will similarly reduce the age at which I can receive distributions under the 457 plan rollover scenario described above. If so, I would almost certainly work one more year. Does anyone know if this has been addressed yet by the IRS, and if so, where I might find the information?
2007-08-10 22:31, By: FDMD, IP: [65.87.105.8]

L2: defined benefit rollover into 457 planThe earliest one may receive a distribution from a governmental 457(b) plan is upon termination of service. There is no age requirement. So take the lump-sum payout option from your Defined Benefit plan and effectuate a direct rollover distribution to your 457(b) plan.You now are free to embark on the distribution plan of your personal choice. As the months go by you can take out more or less or nothing. At age 70-1/2 you must begin Required Minimum Distributions (RMD).2007-08-11 06:35, By: Joel, IP: [24.187.32.203]

L2: defined benefit rollover into 457 planYou may have a problem here.
Under 72(t)9, the early withdrawal penalty continues to apply to rollovers into a 457 plan from a qualified plan such as a DB plan. The 457 plan must keep the balances separate as to source of funds. Moreover, if you did qualify for the public safety employee age 50 exception, the exception appears to only apply to distributions directly from the DB plan. The PPA provisions have not been fully clarified yet by IRS Regs and therefore, you would have to play it safe and assume that any rollover into the 457 plan might well end up being subject to the 10% penalty if distributed, all the way to age 59.5.
Therefore, it would seem that youshould should get written clarification from the 457 plan that any distributions will emanate solely from the original 457 plan assets, and none from the rollover. If you cannot get this assurance, perhaps you would be best suited to roll over the DB funds to an IRA, which you could always use for a 72t plan if your 457 funds ran dry prior to age 59.5.
Of course, if you qualify and after completely considering the pros and cons of starting the DB pension immediately after hitting 50, there would be no penalty if you qualified for the public safety exception. But that”s a permanent decision to start a life annuity at a very early age, which is a huge negative to that option.

2007-08-13 17:09, By: Alan S., IP: [24.116.165.60]

L2: defined benefit rollover into 457 planThe age at which a public safety officer can receive a full DB pension benefit, exempt from the 10 percent federal excise tax,has been reduced to age 50. The benefit from the plan is the present value lump-sum distribution.The earliest this DB pension reserve can be rolled over to a 457b plan with subsequent withdrawals from the 457(b) plan exempt from the 10 percent tax is age 50. The reasoning is straight forward. DO NOT ESTABLISH AN IRA BECAUSE THEN YOU WILL NEED A SEPP UNDER 72t, in order to be relieved of the 10 percent tax.
Joel L. Frank2007-08-13 19:35, By: Joel, IP: [24.187.32.203]

L2: defined benefit rollover into 457 planThere is a forum like this one at www.457.com2007-08-13 20:20, By: dlzallestaxes, IP: [151.197.217.59]

L2: defined benefit rollover into 457 planAlan and Joel,
Thank you for sharing your perspectives.Alan, I have no intention of purchasing an annuity. I would go the SEPP route before doing that. I had a suspicion that the question is still out there with no clear answer yet.Joel, I appreciate your optimism, but I”m afraid that until I get a clear ruling (hopefully through a 457 Plan management firm forking out the big bucks for a PLR) from the IRS, I”m going to have to play it safe, as Alan suggested. 2007-08-15 16:36, By: FDMD, IP: [64.12.116.131]

L2: defined benefit rollover into 457 planThe best clarification of this penalty situation is IRS RR 2004-12. Distributions from the 457 plan that emanate from incoming rollovers are subject to the 72t provisions of the original plan, not the 457. This suggests that if the employee had met the waiver provisions of the source plan, whether the age 55 separation or the new age 50 separation for DB plan public safety employees, that the same waiver should carry over to distributions from a 457 plan that holds the separately accounted for DB plan assets. Therefore, I would wager that Joel is probably correct about the penalty free distributions, however one cannot be totally sure until the that PPA provision is made official. This boils down to how sure do you need to be, and if you have to file a 5329 to claim the exception (process similar to claiming the SEPP exception), will the IRS buy it?I would prefer toat least have the exception coding on the 1099R to provide someaddedinsurance against an IRS challenge.2007-08-15 21:00, By: Alan S., IP: [24.116.165.60]

L2: defined benefit rollover into 457 planDid the PPA purposely not include Federal Law Enforcement Employees in it”s description of Public Safety Employees? Additionally, meaning they cannot take distributions at the age of 50 from their Defined Contribution Plan, the Thrift Savings Plan? Is that the difference, Benefit Plan compared to Contribution Plan?2007-08-22 12:02, By: Tony, IP: [207.255.95.42]