3602 / How are the participants in a Section 457(b) “eligible” plan taxed?

From time to time, Congress and the IRS provide relief for victims of federally declared disasters. Unless a taxpayer elects otherwise, any amount of a qualified disaster distribution required to be included in gross income shall be so included ratably over the three-year taxable period beginning with such year. Qualified disaster distributions are distributions not exceeding $100,000 in the aggregate from qualified retirement plans, individual retirement plans, Section 403(b) tax-sheltered annuities, or eligible governmental Section 457 plans made in accordance with IRS guidance.

Nongovernmental (Private) Tax-Exempt Section 457(b) Eligible Plan

Distributions of amounts deferred under Section 457 eligible plans sponsored by nongovernmental tax-exempt organizations (private charitable organizations and colleges, etc.) are includable in the participant’s gross income for the taxable year in which they are made available to the participant (or to the beneficiary), without regard to whether they actually have been distributed.² These amounts are not considered to be available simply because the participant or beneficiary is permitted to direct the investment of amounts deferred under the plan.³

Amounts generally are considered made available and, hence, includable in income as of the earliest date on which the plan permits distributions to be made on or after the severance of employment, but not later than the date on which the required minimum distribution rules of IRC Section 401(a)(9) would require commencement of distributions.⁴