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Writer's pictureAlexander Newman

457 Plan Rollover Guide: Rules and Withdrawal Options


Understanding the ins and outs of a 457 plan rollover can feel like navigating a maze in the dark, especially when you're peering into the twilight years of retirement. The good news? It doesn't have to be that way. Armed with the right information, you can steer through the decision-making process with confidence, ensuring your hard-earned money continues to work for you, penalty-free, long after you've said goodbye to the 9-to-5 grind. Whether you're meticulously planning your financial future or finding yourself on the cusp of retirement, this guide sheds light on the rules and withdrawal options for rolling over your 457 plan.



1. How Do 457 Plan Rollovers Work After Retirement?

Rolling over a 457 plan after retirement is akin to relocating your lifelong savings from one financial home to another. It's a step many retirees consider to consolidate their assets, simplify their finances, or seek better investment options. But the big question that often looms is: can you rollover your 457 without facing penalties? The simple answer is, yes, you can—but there are a few things you need to know first.


  • Direct Rollover: Opt for a direct rollover to move your funds from a 457 plan to another eligible retirement plan (like an IRA, 401(k), or another 457 plan) without incurring taxes. This method ensures that your money remains in the tax-advantaged environment, sidestepping immediate tax implications and potential penalties.

  • 60-Day Rollover: If you receive the distribution directly, you have 60 days to deposit the funds into another eligible retirement plan. Miss this window, and you could be looking at taxes and penalties. This route requires a bit more diligence to avoid unwanted financial hiccups.

  • Understanding the Rules: Not all 457 plans are created equal. Governmental and non-governmental plans have different rules regarding rollovers and transfers. Before making any moves, ensure you understand the specifics of your plan and how they align with your retirement strategy.


Moving your 457 plan after retirement is a viable strategy to maintain the tax-deferred status of your savings, potentially opening the door to a broader range of investment options. However, it's crucial to navigate this process with a clear understanding of the rules and timelines involved. By doing so, you not only avoid penalties but also position your retirement savings for continued growth, ensuring a smoother financial transition into your golden years.



Frequently Asked Questions

Can 457 plans be rolled over?

Yes, 457 plans can be rolled over into another eligible retirement plan, but not all 457(b) plans permit this. It's important to complete the rollover within 60 days to avoid it being treated as a taxable distribution. Always check your specific plan's rules regarding rollovers.


At what age can I withdraw from my 457 without penalty?

You can withdraw from your 457 plan without penalty at any age. However, withdrawals are taxable. The typical 10% penalty tax for withdrawals before age 59½, applicable to other retirement accounts, does not apply to 457 plans unless the funds were transferred from another type of retirement account.


Can I withdraw money from my 457 to buy a house?

Yes, you can withdraw money from your 457 plan to buy a house, but it must qualify as a hardship withdrawal. Unlike the 401(k) plan, which allows for withdrawals for foreseeable expenses like home purchase or tuition, 457 plans require the hardship to be unforeseeable.


Can you roll a 457 into a Simple IRA?

Yes, you can roll a 457 plan into a SIMPLE IRA. This became possible due to a law change in 2015, which expanded SIMPLE IRAs to accept transfers from traditional and SEP IRAs, as well as from employer-sponsored retirement plans like 401(k), 403(b), and 457(b) plans.


What are the tax implications of a 457 plan rollover?

When rolling over a 457 plan to another eligible retirement plan like a 401(k), IRA, or another 457 plan, the transfer is typically tax-free. However, withdrawals from the new plan will be taxed as ordinary income. It's important to follow IRS rollover rules to avoid potential taxes and penalties.


How does a 457 plan compare to a 401(k) in terms of rollover options?

A 457 plan and a 401(k) differ in rollover options mainly because while both can be rolled over into IRAs, a 457 plan can be rolled over into another 457 plan without penalty. Conversely, a 401(k) offers broader rollover options, including into 457 plans, 403(b)s, and other 401(k)s.


Is it possible to roll over a 457 plan into a Roth IRA?

Yes, it is possible to roll over a 457 plan into a Roth IRA. The process involves transferring your pre-tax 457 plan funds into a Roth IRA, which may require paying taxes on the amount transferred, as Roth IRAs are funded with after-tax dollars.


What are the restrictions on transferring a 457 plan to a traditional IRA?

Transferring a 457 plan to a traditional IRA is generally allowed, but restrictions apply. For instance, governmental 457 plans can be rolled over, while non-governmental 457(b) plans face limitations. Additionally, withdrawals may be subject to ordinary income tax and potentially early withdrawal penalties.


Have more questions? Book time with me here


Happy Retirement,

Alex


Alexander Newman

Founder & CEO

Grape Wealth Management

31285 Temecula Pkwy suite 235

Temecula, Ca 92592

Phone: (951)338-8500

alex@investgrape.com


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