Can 457 Plans Be Rolled Over to an IRA?
A 457 plan is a tax-advantaged savings account that enables public employees and certain tax-exempt workers to defer income tax on retirement savings. Most commonly offered by government entities but some non-government employers also provide this account.
When leaving an employer, you have the option of rolling funds from a 457 plan into an IRA – but before making this decision it’s essential that you fully comprehend any tax ramifications associated with doing so.
Taxes
While 457 rollovers to an IRA may provide a convenient way of streamlining retirement savings and consolidating accounts, taxes should always be carefully considered when considering this move. Each employer plan varies in regards to rules governing these transactions – some only permit in-service rollovers upon reaching age 59 1/2 while other may require qualifying events such as leaving your job or experiencing financial difficulty for in-service rollovers to take place.
As part of your evaluation of an IRA rollover plan, make sure the investment options and fees align with your financial goals. In general, IRAs offer more investment choices than 457 plans while often having lower fees.
Additionally, you must decide how to handle required minimum distributions (RMDs) from your retirement accounts. Speak with a financial advisor about any tax implications of 457 rollover and how it could fit into your overall retirement strategy.
Fees
The fees associated with 457 plans can differ widely depending on their plan type, with governmental plans typically being less costly than non-governmental ones and often being transferrable between plans; while non-government ones only allow transfers between similar plans – making saving accounts difficult.
Many 457 plans rely on a business model in which representatives educate workers about the plan. Unfortunately, this type of arrangement can drive up costs significantly for smaller plans; additionally, unlike IRAs, 457s may not enjoy creditor protection from their sponsors’ creditors; they could therefore become vulnerable in bankruptcy situations.
457 plans, like their 401(k) and 403(b) counterparts, require people to start taking required minimum distributions at a certain age – otherwise a substantial tax bill may result. Thankfully, both non-governmental and governmental 457(b) plans offer some relief for early withdrawals.
Investment options
Though 457 plans may offer some attractive features, they’re generally less flexible than IRAs in terms of flexibility and investment options. They typically only apply to government and non-profit employees.
However, 457 plan rollovers can often be completed while you still work for the same employer (in certain circumstances). While this process can be complex and has its own set of rules and tax implications, a financial professional can assist in making the appropriate decision by reviewing both your individual situation and plan documents.
Based on your needs and circumstances, traditional or Roth IRAs could be suitable investments. Both types offer various investment options and it’s important to choose one that aligns with your lifestyle and goals; additionally IRAs often have greater flexibility with estate planning and beneficiary designation.
Convenience
A 457 plan is a tax-advantaged savings scheme designed to allow government employees to defer income taxes on retirement savings. Individuals can invest in any number of mutual funds with no taxation applied until withdrawal.
As soon as you’re ready to retire, required minimum distributions (RMDs) should begin being made from your account based on both age and value. You should start making RMDs no later than April 1 of the year following your 70th birthday.
Rolling over your 457 plan into an IRA allows you to consolidate all of your retirement assets in one location and streamline financial planning. Plus, IRAs typically offer more flexible investing options than 457 plans as well as potential tax benefits like tax-deferred growth or tax-free withdrawals. When starting this process it is advised that a certified financial planner be consulted first in order to avoid costly mistakes and maximize return from your investments strategy.
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