How Do I Transfer From 457(b) to IRA?
Though 457 retirement plans resemble 401(k)s in many respects, their rules can still be complex and depend heavily on whether your plan is governmental or non-governmental – this can influence distribution options and asset protection options available to you.
Transferring funds from a 457 plan into an IRA typically does not count towards annual contribution limits; however, transfer restrictions vary according to plan type.
1. Contact Your Plan Administrator
457(b) plans are deferred compensation retirement plans offered by certain governmental employers and tax-exempt organizations that allow users to save for retirement in an account that defers income taxes but not payroll taxes.
IRS rules allow distributions from 457(b) plans to be transferred into other eligible retirement accounts such as IRAs and 403(b). There may be certain restrictions, for instance plan-to-plan rollovers are only permitted when receiving account is also of similar type (i.e. governmental 457(b) or an IRA).
Many doctors with access to governmental 457(b) plans opt to roll their money over into an IRA instead, since this offers more investment options and typically lower fees than 457(b) and 403(b) plans. Before making your decision on what path is best for you, be sure to review fees and investment options before deciding if keeping or rolling over into an IRA would be more suitable for you.
2. Ask for a Direct Transfer
Most governmental 457(b) plans permit direct rollovers, in which funds are directly moved between plans by their administrator, typically an asset management firm such as Fidelity or Vanguard, writing a check for the amount in your old account to your new plan custodian.
Governmental 457(b) accounts often come with additional restrictions compared to traditional IRAs or 401(k). The main limitations are limited withdrawal options before leaving an employer and an early withdrawal penalty of 10% must be paid, except in instances of unforeseeable hardship.
But if you have access to an excellent IRA custodian and financial adviser, a government 457(b) could be an invaluable way for you to build wealth. Just make sure you weigh its benefits against costs and restrictions carefully before taking action.
3. Contact Your IRA Trustee
A 457(b) account allows you to withdraw funds from retirement savings without incurring an early withdrawal penalty of 10% if certain criteria are met. These rules were designed specifically to assist state and local government workers who may need access to their retirement savings due to unexpected emergencies, such as imminent foreclosure or eviction from an employee’s home, funeral expenses, medical bills and so forth.
If you want to move your balance from a 457(b) plan into an IRA, ask the administrator of that particular IRA for a direct trustee-to-trustee transfer. This is the most tax-efficient method, as you’ll avoid having your distribution check withheld for taxes as well as future income tax liabilities.
Rollover options for 457(b) accounts include traditional IRAs, Roth IRAs, 401(k), 403(b), and other government 457(b). Unfortunately, only some accounts can accept 457(b) rollovers.
4. Fill Out the Transfer Form
As soon as they leave their employer, 457(b) account holders can choose to transfer any money remaining in the plan to an IRA; however, depending on its type, this process can vary in portability based on what type of plan was held – for instance governmental plans can only rollover funds into another IRA or 403(b), while tax-exempt ones offer Roth IRA options only.
Before consolidating accounts into one IRA, be sure to understand its investment options carefully. While IRAs offer greater choice, 403(b) and 457 plans may have more limited choices available to them.
If you are still employed at the time of transfer, early withdrawal penalties could apply. To prevent this from occurring, consult with a financial planner well in advance of your retirement date to help make wise decisions that won’t violate regulations.
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