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Robin D.
Robin D., Senior Tax Advisor 4
Category: Tax
Satisfied Customers: 13157
Experience:  15years with H & R Block. Divisional leader, Instructor
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I have a 409a deferred comp plan from the company that I

Customer Question

I have a 409a deferred comp plan from the company that I formerly worked at. I worked in California during that time and am now a resident in another state.
I understand that the distributions that I have coming out need to be spreadout over a 10 year period or more.
While I have spread them out over 10 years I pulled a large amount out in my first year in order to pay down some bills prior in order to retire. Now I am learning that the 10 distributions may need to be equal to benefit from the avoidance of California State Income tax. The other nine distributions are significant but now I'm not sure about my status.
Please clarify.
Submitted: 7 months ago.
Category: Tax
Expert:  Robin D. replied 7 months ago.


If distributions are made as part of a series of substantially equal periodic payments over your life expectancy or the life expectancies of you and your designated beneficiary, the §72(t) tax does not apply.

Substantially the same means just that, the amounts are as close to equal as you can make them. Any violation of Section 409A causes the service provider (e.g. the employee) to recognize immediate income tax on deferred amounts, plus a penalty tax of 20% and other related penalties. Again, this tax and penalty apply to you, the participant, and not to the employer.

I think your first distribution may be alright as long as the remaining are still equal. This is under “laddering” where your first or last payment is higher.

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