September 15, 2023

When it comes to retirement planning, you have several options to help grow your savings over time. One of these options is a 457 plan, often available to government employees and some non-profit workers. But what happens when you leave your job, or if you decide you want to combine your retirement accounts for easier management? Can you roll over a 457 plan into an Individual Retirement Account (IRA)?

Let’s dive into the details to help you understand your choices better. The original article that inspired this post can be found here.

What is a 457 Plan?

A 457 plan is a type of retirement account primarily offered to government employees and certain non-profit workers. This plan allows you to save money for retirement and offers the advantage of tax-deferred growth, meaning you won’t pay taxes on your earnings until you withdraw the money in retirement.

What is an IRA?

An Individual Retirement Account (IRA) is another tax-advantaged retirement savings account, but it’s not tied to an employer. There are several types of IRAs, including Traditional, Roth, and SEP-IRAs, each with their unique benefits and limitations.

Can a 457 Plan be Rolled Over into an IRA?

Good news: You can generally roll over a 457 plan into an IRA. Doing so can offer you greater flexibility in how you manage your retirement savings. But there are some important considerations to be aware of:

Tax Implications

If you roll over a 457 plan to a Traditional IRA, the tax treatment remains relatively similar—both offer tax-deferred growth. However, if you decide to roll it over into a Roth IRA, you’ll need to pay taxes on the amount you convert since Roth IRAs are funded with after-tax dollars.

Costs and Fees

Before making the move, inquire about any costs or fees associated with the rollover. These charges could eat into your retirement savings, so it’s crucial to be aware of them beforehand.

Investment Choices

IRAs generally offer a wider array of investment options than 457 plans. If having more control over your investment choices is important to you, rolling over to an IRA might be beneficial.

How to Execute the Rollover

1. Open an IRA Account: If you don’t already have one, you’ll need to open an IRA account.
2. Contact Your 457 Plan Administrator: Notify them that you want to roll over your funds into an IRA.
3. Select Direct or Indirect Rollover: With a direct rollover, the funds move directly from your 457 plan to your IRA. With an indirect rollover, the money is paid to you, and you have 60 days to deposit it into an IRA.
4. Review and Submit the Necessary Paperwork: Follow the instructions provided by your 457 plan administrator and your new IRA custodian.
5. Monitor Your Accounts: Confirm that the funds have been successfully transferred and begin making investment choices in your new IRA.

Conclusion

Rolling over a 457 plan into an IRA is generally an option for most people, and it can offer benefits such as greater investment flexibility and easier account management. However, it’s essential to understand the tax implications and any associated costs before making such a decision.

If you have questions about rolling over a 457 plan, or any other financial planning concerns, please don’t hesitate to reach out to Shah Total Planning. Our team of wealth management and legal professionals are here to guide you every step of the way.

Ready to make your money work for you? Contact Shah Total Planning today for personalized financial guidance. We’re here to help you navigate your retirement planning options for a secure and prosperous future.