That's what I thought, but the W2 with the 457(f) distribution will be issued by a KY employer with all other wages earned in KY. And that is appropriate for those wages. But the 457(f), if it appears on that W2, will likely result in a state audit (KY) as it will be large and a large tax avoidance if it can be claimed in another state. So I am really hoping to build an audit defense here and not finding state-level documentation that is helpful. The federal (IRS) guidance isn't particularly helpful either, referring to this as ordinary income and wages. By the way, in this case the 457(f) is not deferred wages, it is strictly employer contributed plus gains while held in the account.
