What do I do with the 457 account

[TrophyWife]

We are 52 and financially independent and debt free. My husband will work for a few more years at his second act, to pile up some more cash. (We have expensive tastes.)

We currently have a COLA'd pension from the first career. We are able to live comfortably off of 70% of the value. So going forward we feel good.

I just can't figure out what to do with the 457 plan money.

1. I could let it be. It's in a Vanguard target retirement fund with mostly vtsmx. And is accessible if we need it but they charge fees beyond what Vanguard charges.

2. I could slowly roll it into a Roth once our income drops after he leaves the 2nd career job.

3. I could roll it over to a traditional IRA at Vanguard, savings fees but making it unaccessible until 59.5.

4. We could slowly just withdraw it once he stops working, paying no penalties, just taxes and reinvest it in Index funds.

What would you do?

 

[Paracelsus]

I rolled mine into an IRA - the 457 had the same age limitation of 59.5 for access as an IRA.

 

[Blue Collar Guy]

i left mine, as i can get my hands on it penalty free prior to 59.5,

 

[nun]

Rolling my 457 into an IRA would have been a bad move because:

1) I would have lost the penalty free withdrawals before 59.5;
2) I would have lost access to a stable value fund paying 2%.

The funds in my 457 are pretty good as there are a range of target date funds with ERs of 0.3% an index funds with ERs of 0.02% as well as more expensive managed funds. I have everything in the stable value as part of my emergency fund.

 

[Walt34]

In your situation I'd take the last option and wait until he retires and the slowly roll it into an IRA.

 

[38Chevy454]

I agree that the flexibility to withdraw before 59.5 makes it advantageous to leave it where it is. The fee penalty is overcome by that added flexibility. I think last option is the best.

 

[freetodream]

I've been told with my 457B that I need to roll out the Roth portion of it before age 701/2 otherwise I would have RMD's also start including the Roth. (The account has both tax deferred and roth money separated into 2 accounts.

 

[Gumby]

Is it your 457b plan, or your husband's? The age at which you retire from an employer with a 457b plan makes a difference. As the IRS says

the employee separates from service during or after the year the employee reaches age 55 (age 50 for public safety employees of a state, or political subdivision of a state, in a governmental defined benefit plan)

https://www.irs.gov/retirement-plan.../retirement-topics-tax-on-early-distributions

In other words, assuming the 457b plan is yours, you can't retire from the job at 52, then wait until you are 55 and start drawing without penalty. You need to be at least 55 when you retire from the employer through whom you have the 457.

 

[Texas Proud]

Guess what... I can vote for two of them!!!! And I did....


I voted to roll into and IRA.... and THEN slowly move to ROTH...

You say you can live comfortably on the pension so there is no need to access the money.... and if something happens that would make you do it, then just pay the penalty on the money you need.... or take money from some other place knowing you got this stashed and can get to it any time....

 

[Another Reader]

Is it your 457b plan, or your husband's? The age at which you retire from an employer with a 457b plan makes a difference. As the IRS says

https://www.irs.gov/retirement-plan.../retirement-topics-tax-on-early-distributions

In other words, assuming the 457b plan is yours, you can't retire from the job at 52, then wait until you are 55 and start drawing without penalty. You need to be at least 55 when you retire from the employer through whom you have the 457.

This is not a defined benefit plan nor is it a qualified plan like a 401k. The rules are different.

From the publication:

Nonqualified 457(b) plans: Governmental 457(b) distributions are not subject to the 10% additional tax except for distributions attributable to rollovers from another type of plan or IRA.

 

[FUEGO]

Guess what... I can vote for two of them!!!! And I did....


I voted to roll into and IRA.... and THEN slowly move to ROTH...

You say you can live comfortably on the pension so there is no need to access the money.... and if something happens that would make you do it, then just pay the penalty on the money you need.... or take money from some other place knowing you got this stashed and can get to it any time....

What he said.

If you don't need the funds held within the 457 before you're 59.5 then there's no real value in that novelty of the 457 account. Go ahead and move to Vanguard IRA and then convert to Roth based on your existing tax strategy to convert to Roth (assuming you have one).

I have a small-ish 457 that holds about $70k. That's about 2 years living expenses for us and we're both still in our 30's. As a result, we want to keep the 457 for flexible withdrawal purposes (never know when you might want to pull $70k penalty free). I can't remember the fees we pay in the 457 but it's something like .12% for a Total US Market Index Fund (vs 0.05% or so at Vanguard for similar) plus a tiny annual account fee (under $30 I recall).

We still have around 10 years worth of expenses in a taxable account plus a few years of Roth contributions, so at some point in less than 10 years we won't really have much of a need for that flexibility of penalty free withdrawals and would consider rolling the 457 into a trad. IRA and continuing on our Roth conversions to set up the Roth IRA conversion ladder.

 

[PERSonalTime]

Leave it be. The ease of access outweighs everything else. If you need it in the unforeseeable future and can't access it, you'll regret tying up your money.

 

[Gumby]

This is not a defined benefit plan nor is it a qualified plan like a 401k. The rules are different.

From the publication:

Nonqualified 457(b) plans: Governmental 457(b) distributions are not subject to the 10% additional tax except for distributions attributable to rollovers from another type of plan or IRA.

A 457b plan can be established by any tax exempt entity. We don't have enough information to know whether it is a qualified plan or a non-qualified governmental plan. In either event, if one of the four strategies is to take distributions prior to 59-1/2, OP needs to triple check the tax implications of that.

 

[TrophyWife]

It's from a government job (public safety) so we can access it any time without penalties or fees

 

[H2ODude]

Did what Fuego and Texas Proud did. Retired at 60 and moved it to IRA and have been dribbling it into Roth. At 66 I'm thinking about some serious bullet biting and moving substantially more into Roth. The thread about what happens to a surviving spouse paying the single taxpayer rate is what is motivating me.