Before making the switch to an IRA from your 457 account, it is wise to carefully evaluate its potential advantages and disadvantages. An advisor can assist in helping determine whether such a move makes sense given your specific financial circumstances and retirement goals.
Understand that when rolling over a government retirement plan into an IRA, 20% will be withheld for taxes compared with direct rollovers from plans like 401(k). This could potentially leave your retirement savings short by some amount – which may create an unexpected shortfall.
Taxes
Rollovers from 457 plans can be an excellent way to expand your investment options or consolidate multiple retirement accounts into one streamlined account, but it is important that you understand all applicable rules and tax considerations before determining if it’s the best decision for you.
Rollover to an IRA offers many advantages, such as accessing more investments such as stocks, bonds, mutual funds and ETFs; more flexible contribution limits and age restrictions than 457(b) plans; however, one significant drawback of rolling over 457 funds into an IRA account is paying taxes upon transfer from pre-tax account into post-tax account – potentially becoming an upfront expense that must be carefully considered as part of your retirement strategy.
Fees
Rollover of your 457 to an IRA has several advantages, such as accessing more investment options and streamlining retirement planning by consolidating retirement savings. Before initiating this process, however, it’s crucial that you fully understand its workings; consulting a financial expert may help determine whether its advantages outweigh its risks and responsibilities.
Step one of the rollover process involves opening an IRA account. There are various financial institutions you can open an IRA with depending on your preferences and investment goals, before getting an official distribution request form from your plan administrator to initiate the transfer.
Keep in mind that rolling over a 457 account into an IRA does not count against your annual contribution limit; however, withdraws should be coordinated with other sources to maximize tax efficiency and necessary minimum distribution rules must also be observed after reaching a certain age.
Withdrawals
457 plans allow your money to remain tax-deferred until retirement, which may prove useful if you anticipate being in a lower tax bracket then. Withdrawals, however, are subject to income tax as well as an early distribution penalty of 10% if taken before age 59 1/2.
457 plans generally accept pre-tax wages only; however, many employers offer Roth options allowing employees to contribute after-tax dollars as well. Furthermore, similar to traditional 401(k)s and individual retirement accounts, 457 plans allow participants to borrow against their vested balances through loans from their 457 plan account.
Rolling funds over from a 457 plan into an IRA has the advantage of offering more investment choices to match individual retirees’ risk tolerance, goals and time horizon. Before considering such an option, however, it’s wise to consult a financial professional so as to fully comprehend its implications on retirement planning strategies.
Rollovers
Rollover decisions can have far-reaching implications for your retirement savings and should be carefully considered, ideally with assistance from an experienced financial advisor.
Step one in understanding a 457(b) plan and its differences from an Individual Retirement Account is understanding its purpose and comparing them. Both plans provide employer-sponsored retirement savings options; however, an IRA provides more investment choices and flexibility. Furthermore, take note of any tax implications.
Government 457(b) plans follow similar rules to 401(k)s and IRAs when it comes to rolling over funds, so tax penalties can be avoided by making a direct trustee-to-trustee transfer within 60 days to an eligible IRA account. Unfortunately, nongovernmental 457(b) plans don’t offer in-service rollovers after retirement or specific triggering events, further complicating how these accounts work alongside other savings vehicles.
