“I work with a private 501(c)(3) health care organization that sponsors both a 403(b) and a 457(b) plan. We permit in-service distributions in our 403(b) at age 59.5, and would love to allow such distributions in our 457(b) plan as well for administrative and communication consistency purposes, but have always been told that the law that applies to 457(b) would not allow that. However, I recently read an article indicating that a SECURE Act-related provision would permit in-service distributions in 457(b) plans at age 59.5. Is that correct?”
Charles Filips, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, senior financial adviser at CAPTRUST, answer:
That is partially correct, but unfortunately not in a way that would help your goal of consistency. The American Miners Act of 2019 was indeed signed into law at the same time as the Setting Every Community Up for Retirement Enhancement (SECURE) Act, and it did modify the distribution rules that apply to 457(b) plans as you indicate. However, as you can see from the language from the Act, below, It only modified the permissible distribution age for GOVERNMENTAL plans:
“APPLICATION TO GOVERNMENTAL SECTION 457(b) PLANS.—Clause (i) of section 457(d)(1)(A) of the Internal Revenue Code of 1986 is amended by inserting “(in the case of a plan maintained by an employer described in subsection (e)(1)(A), age 59½)” before the comma at the end.”
Thus, the earliest age at which in-service distributions would be permitted for governmental 457(b) plans was lowered from age 70.5, which was the age for all 457(b) plans prior to the American Miners Act enactment, to age 59.5. However, since you are a NONGOVERNMENTAL 457(b) plan sponsor, the earliest age at which an in-service distribution may be taken from your 457(b) plan is unchanged and remains at age 70.5. This has become yet another one of the numerous differences between governmental and private tax-exempt 457(b) plans. We described some of the other major differences in a previous Ask the Experts column.
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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