409A

[gjcaldwell]

I have a 409A . It provides a lump sum distrbution that I am committed to not changing. The separation of sevrice date is 12/31/2021.  The distribution will actually take place in 2022.  Two questions:

1.  To which tax year, 2021 or 2022, is the distribution subject to?

2.  Is the plan trustee required to withhold taxes at distribution or may I pay them when I file in April for  the subject tax year?  

[TaxT2021]

Hi G Caldwell

I hope this day finds you exhilarated and well.

To clarify:

1. You have deferred compensation
2. The compensation is deferred under a Nonqualified Deferred Compensation Plan (409A)
3. You will be exiting the company on 12/31/2021
4. are taxes applicable in 2021 or  in 2022 when distribution is made?

Here are  the key guidelines for income inclusion:

• Per The US Code (409A)
  • Distributions are includable in income at the time of distribution if
    • Your distributions cannot occur until 
      • Separation from service (6 mos after separation if a key employee)
    • Your plan does not permit acceleration of payments
    • You have elected to defer compensation

These are the prime consideration barring any exceptions.  

In conclusion, distributions are included in taxable income in 2022.

• As far as tax withholdings, read the plan document.
• If taxes are not withheld, depending on your tax circumstance, you may have to remit any tax due with your personal tax returns

I recommend that you speak with a TurboTax or Mint professional, for a further analysis you particular situation.

Glad to you participated in this forum.

All the best!