Can a 457(b) Retirement Plan Roll Over to an IRA?

A 457(b) rollover allows funds in a 457(b) retirement plan to be transferred to an IRA, offering continued tax-deferred growth and a wider range of investment options. Whether you’ve left an employer or are preparing for retirement, rolling over a 457(b) can simplify account management and provide more flexibility in how you invest. However, the process and tax treatment can vary depending on whether you have a governmental or non-governmental 457(b), so it helps to understand the rules that apply to your specific plan.

If you’re considering a rollover, speak with a financial advisor to understand how it may impact your finances. 

What Is a 457(b) Rollover?

Imagine leaving your job and transferring your retirement savings to a more preferred plan. A 457(b) rollover refers to the process of moving funds from a 457(b) retirement plan to another qualified retirement account, such as an IRA. This move can be advantageous for several reasons, such as consolidating retirement savings, potentially accessing a broader range of investment options and in some cases, reducing administrative fees.

The rollover process typically involves initiating a request with your plan administrator, selecting the right type of IRA for your needs and then transferring funds from your 457(b) plan to the new IRA. This process can be complex and requires an understanding of the rollover rules, tax implications and potential benefits.

Rollover Rules for a 457(b) Plan

The rollover rules for a 457(b) plan depend on whether it is a governmental or non-governmental plan. The type of plan determines where the funds can be moved and how they will be taxed.

Governmental 457(b) Plans

Governmental 457(b) plans generally offer more flexibility. Funds from these plans can be rolled over to a traditional IRA, Roth IRA, 401(k) or 403(b) plan. A direct rollover avoids a taxable event, unless the funds are moved to a Roth IRA, in which case the rollover amount is taxed as income in the year of the transfer.

If funds are withdrawn, they are taxed as ordinary income, but withdrawals are exempt from the 10% penalty on early distributions that applies to many other types of retirement accounts. Understanding this distinction can help you plan how to access your funds.

Rollovers from a governmental 457(b) are typically allowed after you leave the employer sponsoring the plan, retire or if the plan is terminated. These rollovers help maintain tax-deferred growth and can simplify retirement account management.

Non-Governmental 457(b) Plans

Non-governmental 457(b) plans have more limited options. Funds from these plans usually cannot be rolled over into an IRA, 401(k) or 403(b). Rollovers are generally restricted to another non-governmental 457(b) plan sponsored by a similar tax-exempt employer.

Benefits of Rolling a 457(b) Plan Into an IRA

Rolling a 457(b) into an IRA can offer several advantages that may make the transition appealing, whether you’re changing jobs or planning ahead for retirement. Here are some of the most popular benefits of rolling a 457(b) account into an IRA.

• Investment options: You may be able to invest in a wider range of investment options with a different tax-advantaged account. 
• Tax deferral benefits: With the right account you won’t have to pay taxes until you withdraw the funds. 
• Tax deductions: You’ll need to open an IRA to transfer your 457(b) into. You can make additional contributions to your IRA and may be able to claim a deduction for them.

How this could benefit you is going to vary based on your situation, which is why you may want to talk it over with a professional. 

Can You Roll Over a 457(b) Plan While Still Employed?

Rolling over a 457(b) plan while you are still working for the sponsoring employer is generally not allowed. Most plans restrict rollovers to specific events, such as separation from service, retirement, disability or plan termination. As long as you remain employed and actively contributing to the plan, your funds typically must stay in the account.

Some plans may offer in-service distributions under limited circumstances, but this feature is uncommon and usually subject to strict conditions. For example, certain plans may permit small balance cash-outs or distributions for unforeseen emergencies, but these options do not function as rollovers and can trigger taxes.

If you are considering a 457(b) rollover and are still employed, it is useful to review your plan’s rules or consult with the plan administrator to understand your options. In most cases, you will need to wait until your employment ends or another qualifying event occurs to move your 457(b) funds to an IRA or another retirement account. This allows you to avoid unintended tax consequences and helps preserve the full value of your retirement savings.

Managing retirement accounts effectively involves balancing taxes, investment growth and future income needs. SmartAsset’s retirement calculator can help you to estimate how your current savings may translate into retirement income over time.

Bottom Line

Understanding the process, rules and implications of rolling over a 457(b) retirement plan into an IRA will help ensure you make an informed decision. It’s important to assess your individual circumstances, consider the potential benefits, understand the tax implications and consult with professionals for personalized advice that suits your financial landscape. When conducted appropriately, a rollover from a 457(b) plan to an IRA can offer greater investment flexibility, potential tax benefits and simplified account management. 

Tips for Retirement Planning

• If you’re planning for retirement income you may want to enlist the help of a financial advisor. The right professional can help make an investment plan to grow your wealth so you hit your financial goals. Finding a financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with vetted financial advisors who serve your area, and you can have a free introductory call with your advisor matches to decide which one you feel is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now. 
• You may want to use a tool like a retirement calculator to help you understand how much you need to save for retirement and whether you’re on track or not. 

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