Can I Transfer My 457 to a Roth IRA?
The 457 plan is a tax-advantaged deferred compensation retirement account offered by both government agencies and some nongovernmental employers, where employees contribute pretax dollars before seeing their investment earnings accrue tax-deferred until withdrawal time.
Rolling over a 457 to an IRA offers several advantages, such as increased investment options, asset consolidation and possible cost-cutting measures on account management fees and withdrawal flexibility. Unfortunately, however, the rollover process can be complex and may have certain restrictions or restrictions placed upon it.
What is a 457(b) plan?
A 457(b) plan is a form of retirement savings account available only to public employees who work for governmental entities, similar to 401(k). But unlike its 401(k) counterpart, these government 457(b) accounts don’t protect funds against an employer’s creditors like 401(k).
Once an individual leaves employment, they have the option of rolling over funds from a 457(b) into another type of retirement account – potentially providing more investment options and lower fees.
Rollover processes typically take 60 days. Once transferred, funds are deposited in an IRA where they’ll be subject to all of its rules, including required minimum distributions (RMDs) which could incur penalties. Therefore, it’s imperative that any withdrawals made are discussed with an expert financial professional before being implemented to ensure your retirement strategy aligns with your overall goals.
How can I transfer my 457 to a Roth IRA?
If you wish to transfer your retirement savings from a 457(b) plan into a Roth IRA, simply request that its administrator make a trustee-to-trustee transfer. When this rollover has taken place, IRS Form 1099-R will be issued, along with instructions for reporting its taxable amount on line 16a of your tax return.
Roth IRAs offer an attractive retirement savings vehicle to individuals who anticipate paying higher tax rates in the future. Like 457(b), contributions made after-tax can be tax-free once withdrawals begin in retirement provided you’ve been an active participant for at least five years. Before making this decision, though, there are many things to take into consideration before converting – for instance knowing what constitutes a rollover and contribution and knowing whether income limits apply when considering Roths.
Can I transfer my 457 to a Roth IRA if I’m self-employed?
There are various strategies you could employ to achieve this goal, depending on your specific circumstances. One option would be to convert your old 457 into a Roth IRA (or designated Roth account), so that its funds can be withdrawn tax-free after retirement. Another possibility is to convert traditional IRA or SEP accounts to Roth accounts through what’s known as backdoor Roth conversion, though you will owe taxes upon conversion but withdraw it tax free later.
Roth IRAs can be an excellent retirement savings vehicle for freelancers and small business owners, as they allow you to invest after-tax income for future security. You don’t have to take distributions by age; alternatively, withdrawal penalties may be waived in cases such as buying your first home, medical costs not reimbursed by insurance and disability payments.
Can I transfer my 457 to a Roth IRA if I’m a government employee?
Many government employees participate in 457(b) plans, which is a tax-deferred retirement savings account. You contribute pre-tax dollars into this savings plan and any investment earnings aren’t taxable until withdrawal time.
Additionally, most employers allow workers to make additional contributions of up to $7,500 annually as catch-up contributions; this brings their maximum annual contribution total up to $30,000 ($22,500 + $7.500).
Like 403(b) plans, governmental 457(b) accounts provide some flexibility when it comes to distributions. You may withdraw funds without incurring an early withdrawal penalty if you’re over 59 1/2 and have left employment.
However, you will still owe ordinary income tax on distributions made before age 59 1/2 if any made prior to then are taken from governmental 457(b) accounts and used to fund early retirement plans. Luckily, the IRS allows individuals who plan to do this to rollover these funds into an IRA instead.