How Do I Transfer From 457(b) to IRA?
Rolling assets over from a public sector 457(b) plan into an IRA can provide individuals with wider investment opportunities, savings on account management fees and enhanced withdrawal flexibility – but this transaction should not be undertaken lightly.
Financial transactions come with their own fees, and if conducted improperly can become subject to taxes and penalties for individuals involved. Rollovers are especially susceptible to becoming taxable distributions when executed incorrectly and could expose individuals to potentially devastating tax burdens and penalties.
How to Transfer from a 457b to an IRA
Rolling your savings from a 457(b) plan into an IRA may bring several advantages. First off, the transfer is tax-free if completed within 60 days and secondly you may gain access to more investments through an IRA than with your 457(b).
A 457(b) retirement savings account is available to certain employees working for state and local governments, nonprofit organizations and certain private employers. Similar to 401(k), but with no employer matching contributions and no early withdrawal penalties should they retire or change jobs early, a 457(b) may offer valuable tax-deferred retirement savings options for some workers.
Governmental 457(b) plans are held in trust and protected from creditors. Non-governmental (or “eligible”) plans, on the other hand, are at greater risk in case their sponsoring organization goes bankrupt and could even lead to their collapse.
What to Expect
Making the switch from 457(b) to an IRA may offer several benefits for individuals, including wider investment choices and asset consolidation. Furthermore, switching could mean saving on account management fees as well as greater flexibility with withdrawal rules.
However, when considering whether or not to roll over, it’s essential that all parties involved understand the process and implications associated with rolling over. Consulting an informed financial professional is invaluable here.
Funds transferred from a 457(b) typically do not count toward the annual retirement-plan contribution limits of their destination IRA; however, if not completed within 60 days it could be treated as a distribution and subject to taxes. If an individual is under 59 1/2, RMD rules may also apply with penalties potentially attached for noncompliance.
Getting Started
An integral aspect of moving from a 457b to an IRA involves making sure the rollover goes smoothly. You should contact both the plan administrator and trustee of each account involved to facilitate this transition – usually this can be accomplished via direct trustee-to-trustee transfer.
Although 401(k) and 403(b) plans can be easily transferred between employers, 457(b) plans have specific rules to abide by for transfer. A 457(b) rollover typically only allows when employment with the company offering the plan ends and when participants separate.
An IRA conversion may provide individuals with more investment choices, asset consolidation and potential savings on account management fees; it may also cause temporary complexity and require them to reconsider their overall retirement goals; to help navigate this journey it is often best to work with a financial professional who can help weigh out both sides of any switch from 457(b) to an IRA account.
Taxes
Contributions to a 457b retirement account can help lower your taxable income each year; however, distributions after retirement will be taxed as ordinary income and may need to be reported on tax forms as ordinary income.
457bs are ideal for early retirees or individuals facing financial difficulty who don’t wish to wait until age 59 1/2 to start withdrawing funds, which makes them an appealing option.
Converting from 457b to an IRA may present individuals with greater investment options and asset consolidation potential as well as potential savings on management fees, greater withdrawal flexibility and withdrawal options. Any decision to do this must be carefully considered.
Notably, funds rolled over from a 457b into an IRA do not count against your annual retirement-plan contribution limit. Your RBC Wealth Management advisor can assist in devising the ideal strategy for you based on your unique circumstances.
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