Can 457 Plans Be Rolled Over to an IRA?

A 457 plan provides state and local government employees, as well as some employees of non-profit organizations, with tax-advantaged retirement savings accounts that allow them to invest in mutual funds and annuities tax-efficiently.

If you decide to switch careers and rollover your 457 plan into an IRA, the process should be fairly straightforward; however, its rules can be more complex.

Types of 457 Plans

A 457 plan is a tax-advantaged retirement savings account available to many state and local government employees as well as certain employees of non-profit organizations. Like 401(k), employees contribute money through paycheck deductions into their 457 accounts which grow tax-deferred – until retirement or leaving employment, when distributions become taxable as ordinary income.

Rules regarding what retirement savings accounts can be transferred into a 457 plan can be more restrictive than for other accounts, for instance if you have a governmental 457 plan through your employer, its funds cannot be moved over into nongovernmental 457 plans and vice versa; additionally funds in these governmental plans do not offer protection from creditors in case your employer declares bankruptcy.

However, there are exceptions. Certain government 457 plans allow early withdrawal without incurring penalties in cases such as quitting your job unexpectedly or becoming disabled.

Rules for Rolling Over

Rollover of distributions from 457 plans into an IRA must take place within 60 days and into an IRA account established separately from your employer’s retirement plan; also, this new account must meet eligibility requirements as an eligible retirement account.

Your options could include both traditional and Roth IRAs; however, make sure yours meets other requirements such as annual contribution limits.

Rolling your 457 plan over to an IRA may also save money in fees. Some 457 plans charge processing or distribution fees that can eat away at your investment growth over time.

Consolidating accounts can make managing and monitoring investments simpler, as well as provide personalized guidance tailored to your unique financial situation. Consolidation may prove especially helpful when planning for retirement – yet to select an advisor who best understands what approach is the right one, it’s crucial that you find someone qualified enough to guide you towards making an informed decision about which path is right.

Tax Implications of Rolling Over

Individuals can reap numerous advantages by consolidating retirement assets into one account. Consolidation helps simplify tax matters and lower management fees that could erode savings over time, but rollovers do have their drawbacks, such as losing unique 457(b) withdrawal benefits or mixing different retirement plan assets into the same account, potentially incurring taxes on certain asset classes and possible account closure penalties.

An important thing to keep in mind when rolling over 457(b) plans into an IRA or Roth IRA is whether the destination account qualifies as a 457(b). A government 457(b) cannot be converted to an IRA account.

Note that to qualify for an indirect rollover, funds must be deposited directly into the new account in order to avoid taxes and penalties that might otherwise result if distributed first to you before being transferred into an eligible retirement plan. Working with an advisor who can assist in filling out all the appropriate paperwork will also ensure your account meets IRS rules.

Rollover Options

A 457 plan is a tax-advantaged retirement savings scheme specifically tailored for state and local government employees as well as some non-profit workers, deferring taxes until funds are withdrawn from retirement savings accounts. Similar to 401(k) or 403(b), government 457 plans provide flexible investment selection as well as an IRA rollover option.

Just like a 401(k) or an IRA, 457 plans come with Required Minimum Distribution requirements that could impose penalties if not taken when required. For government employees’ 457(b) plans, this begins at age 72 but will increase to age 73 starting 2023 by law.

Rolling over a 457(b) into an IRA can help make retirement savings simpler by consolidating multiple accounts into one central hub and streamlining investment activities. Just be sure to keep good records for tax purposes when initiating this transaction – any money transferred between accounts does not count towards annual retirement-plan contribution limits!


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