A 457 plan is a tax-deferred retirement savings account available to state and local government employees as well as some non-profit organizations. While it offers similar investment options as its 401(k) counterparts, its unique characteristics must also be taken into consideration when contemplating rollover options.
Government 457(b) funds fall under the IRS’ required minimum distribution (RMD) rules, which stipulate that once they reach a certain age you must begin withdrawing funds annually from them.
Convenience
Transferring assets from a 457 plan into an IRA may seem simple, but its rules may be complex. For best results, consult with a financial professional who can explain all your options and assist in selecting an account tailored specifically to your circumstances.
457 plans offer employees tax-deferral advantages that allow them to save for retirement without paying taxes until withdrawal, but there are certain rules they should abide by to avoid taxes and penalties; such as noting some plans charge rollover fees which could eat into your savings.
Additionally, both government- and non-government 457(b) plans require participants to begin receiving minimum distributions at age 72 (or age 73 beginning 2023). When rolling over your plan into an eligible IRA account, make sure it does not incur an administrative penalty as this could incur extra charges. However, keep in mind that you can do a rollover even while employed!
Taxes
A 457 plan is a tax-advantaged retirement savings scheme offered to government and non-profit employees. Participants can defer income taxes on contributions until withdrawal, similar to traditional 401(k) or IRA accounts; additionally, this plan offers unforeseeable emergency withdrawals without penalty fees.
Note, however, that withdrawals will be subject to both federal and state taxes; to determine the best course of action consult a financial advisor.
Direct rollover is often the best choice, as it bypasses potential taxes and penalties that may arise with indirect rolling. Another benefit of rolling is diversifying assets into more diversified portfolios; managing multiple retirement accounts can be challenging, so consolidating them may make tracking performance and allocating funds easier.
Investment options
IRAs provide investors with an array of investment choices. Their flexibility enables a diversified portfolio that helps reduce market volatility and safeguard hard-earned retirement savings. But this process can present unique challenges; selecting an IRA that meets your individual needs may take more time and paperwork than expected, leading to frustration down the line.
However, IRAs often charge fees to initiate rollovers which can counteract some of their benefits. Furthermore, an unrolled 457 plan may be considered a distribution and subject to taxes and penalties.
457(b) plans provide tax-advantaged savings plans available to government and non-profit employees, enabling workers to contribute a percentage of their salary up to an annual limit. Contributions made aren’t taxed until withdrawal in retirement; alternatively, there’s also the Roth variation which accepts after-tax dollars but offers tax-free withdrawals upon retirement.
Fees
A 457 plan is a tax-advantaged retirement savings account provided by certain government and non-government entities that allows participants to defer income taxes on their retirement savings until retirement and provide various investment options for those investing in it.
Not all 457 plans can be converted to an IRA, potentially leaving some investment options and your retirement strategy impacted. Before considering moving your governmental 457 into an IRA, speak to a financial advisor first to ensure this decision is right for you.
Similar to 401(k)s or IRAs, 457(b) plans allow you to contribute pre-tax dollars that reduce your taxable income, before the money grows tax-free until you withdraw it, at which time ordinary income taxes must be paid on it. Furthermore, those over 50 can take advantage of catch-up contributions, which doubles the contribution limit annually up to $22,500.
