Can 457 Plans Be Rolled Over to an IRA?
If you work for a government entity, you may be eligible to join a 457 plan. Similar to 401(k) accounts but with some unique advantages; 457 plans allow participants to withdraw funds without penalty if they change jobs or retire.
However, they come with restrictions and RMD rules which limit their flexibility.
Taxes
As retirement accounts, both the 457 and the IRA provide tax-deferred growth. They differ however in several key aspects – for instance, with regard to penalties surtaxes for early withdrawals under age 59 1/2; also offering more distribution options such as loans and lifetime income products than one another.
Nongovernmental 457 plans may be converted to either a traditional IRA or Roth IRA depending on participants’ current and future tax situations, with RMDs due once a participant reaches age 72.
Like its 401(k) counterpart, most 457 plans do not offer employer matching contributions, leading to higher costs of participation among plan participants. Fees charged by providers differ between plans; typically larger plans have more leverage when negotiating fees with them.
Fees
A 457(b) plan is a retirement savings vehicle available to government employees and some non-government employers that offers higher contribution limits than traditional 401(k) or 403(b). Furthermore, these plans can serve as tax-deferred earnings vehicles.
As part of your rollover strategy for a 457 plan, it is crucial that you understand any fees that might apply. Some providers of IRAs impose additional charges for handling 457(b) rollovers; others have proprietary funds or investment structures that cannot be transferred into an IRA account. Such fees could eat into your retirement savings and require a reevaluation of investment strategies.
Reconverting from a 457(b) to an IRA can simplify and expand your retirement options, as well as save you money in administrative and management fees that erode savings over time. One way to reduce these fees is investing in low-fee IRAs such as the ICMA-RC Vantagepoint Traditional IRA.
Withdrawals
Rolling over a 457 plan allows you to transfer assets into a traditional private sector 401(k) or IRA, similar to how funds from a 401(a) can be transferred into a 401(k). However, not all assets can be moved; certain proprietary funds and special investment structures cannot be moved over.
Rollover assets don’t have to be your only option when withdrawing funds from your 457 plan; lump sum withdrawal may also be possible and may put you into a higher tax bracket, so it is wise to carefully consider all options before taking one of these measures.
Another option available to your 457 account is rolling over funds into a retirement distribution annuity. Should you elect this method, your payments will be calculated using the Consumer Price Index-U (CPI-U), with annual cost-of-living adjustments (COLAs) limited to 5%; please refer to the 457 Alternative Installment Options form for more details.
Investment options
A 457 plan is an employer-sponsored retirement savings plan that allows state and local government employees, tax-exempt nonprofits and certain others to invest a portion of their salaries tax-deferred until retirement or job transition occurs. Money invested through mutual funds or annuities grows tax-free until employees retire or depart their jobs.
Nongovernmental 457 plans are limited to highly-compensated employees and cannot be transferred into other savings accounts such as an IRA or 401(k). Furthermore, funds in nongovernmental 457 plans rank junior to any outstanding debt obligations held by employers and may be subject to claims by creditors of the employer company.
If you are an employee participating in a governmental 457 plan, rolling over assets into an IRA may involve certain fees that can eat into investment returns and even cause inadvertent tax distributions if funds aren’t transferred properly.
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