Deadline Nears: Required Minimum Distributions for Deferred Compensation 457(b) Plans for Tax-exempt Co-ops

Required minimum distributions (RMD) must be withdrawn by December 31 for the 2015 tax year. You can help your former employees and directors participating in your cooperative’s 457(b) Plan by reminding them of the deadline and the potential penalty if they fail to take an RMD.

Failure of the participant to take a withdrawal of the minimum amount required could result in a penalty equal to 50% of the difference between the RMD amount and any amount distributed or withdrawn from an individual’s account for each tax year.

A participant’s initial RMD can be deferred until April 1 of the year after they reach age 70½. If they delay taking the RMD until April 1 of next year, they will be taking two RMDs during the same tax year. The combined amount may put them in a higher income bracket, which would potentially increase their tax obligation. The RMD rules apply to deferred compensation plans sponsored by tax-exempt co-ops which are governed by IRC Section 457(b). These plans include:

• Executive Compensation 457(b) Plans;
• Global Executive Compensation Plans; and
• Governmental Deferred Compensation 457(b) Plans.

Participants should contact their personal financial and/or tax advisors for help in determining the amount of the RMD.

Questions? Please contact the Deferred Compensation Program team by email at deferredcomp@nreca.coop or by phone 703.907.6375.