§457(f) Distributions

Distributions from §457(f) accounts are never subject to any premature penalties, regardless of the account holder’s age.

Generally, there are three sets of circumstances
under which a §457(f) distribution may take place: Once the substantial risk of forfeiture disappears, the account is taxable and ordinary income taxes apply. However, in order to avoid taxation on the entire amount all at once, arrangements may be made to spread out the payment of benefits over a number of years, for example through a consulting contract, with 20–25% vesting in each year.

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