457 Plan

[Ginger]

Does anyone have this type of deferred compensation plan? Can you put in a IRA rollover after retirement without incurring taxes?

 

[WanderALot]

I believe so, check out www.457bwise.com. There also appears to be several types of 457 plans, but I think 457(b) is the most common.

We opened a 457 plan for my wife last year. What's interesting about this plan is that there seems to be no 10% withdrawal penalty if you take out the money before age 59.5 (once you terminate employment).

 

[sgeeeee]

You can roll a 457b plan over to an IRA, but the 457b plan is a lot more liberal in withdrawals. You don't have to wait till age 59 1/2. After looking over the differences between IRAs and 457b plans, I decided not to do a roll over.

 

[maddythebeagle]

I have a 457k plan. I cant think of much reason to roll it over into an ira except for maybe lower fees but 457k's are usually pretty low fee, you can draw on at termination of employment so I plan to keep mine in place. I think if you look through your plan literature, it will explain your options. One is lump sum, rollover into another 457 plan, rollover into ira, or taking some periodic payment. Mine indicates if you can also have some inflation adjustment in your payouts.

 

[bosco]

I also have a 457b plan. It can be rolled into an IRA, as stated. But the 457 is more flexible in its withdrawal possibilities.

HOWEVER, at least for my 457, if I roll it into an IRA, I can change custodians and get much more options in what I can invest in. If I leave it as a 457, I have more withdrawal flexibility, but very few choices in how I want to invest since I must leave it in the same limited program with the same custodian. As it was explained to me, I may not switch custodians unless I take it out of 457 status.

choices, choices...

 

[maddythebeagle]

what kind of options do you have? I work for the state of wisconsin, so I have pretty good options. Maybe the locals dont have as good of options?

I have 4 stock index funds, some good bond funds and a schwab self directed option(that I dont use, but may in the future), which I could pick off any of the funds from there. The sp 500 index fund in our plan has an expense ratio of 0.02%, which I think would be hard to match anywhere else. Other index funds range from 0.04-.10

 

[Bookm]

what kind of options do you have? I work for the state of wisconsin, so I have pretty good options. Maybe the locals dont have as good of options?

I have 4 stock index funds, some good bond funds and a schwab self directed option(that I dont use, but may in the future), which I could pick off any of the funds from there. The sp 500 index fund in our plan has an expense ratio of 0.02%, which I think would be hard to match anywhere else. Other index funds range from 0.04-.10

That is a good plan. The Virginia plan is a strong one as well. We have 6 equity index funds and Vanguard's TIP's and H-Y bond fund, and a PIMCO one too. Who is Wisconsin's plan administrator anyway? It's not Great West is it?

Bookm

 

[Ginger]

The 457 is my husband's deferred compensation plan.  He will be retiring in October. From the brochure, it states if we don't pick a payout option before he dies, then the entire lump sum goes to the beneficiary.  Obviously, that would trigger one huge tax bill if we don't pick a payout option beforehand.  (I am still wondering if the beneficary can then decide to take the withdrawals in a monthly payment instead of a lump sum.  Will have to investigate further.)  We have decided to keep the 457 plan and not rollover to an IRA.  

 

[maddythebeagle]

I think ours is nationwide.

 

[Mountain_Mike]

My philosophy includes diversification, and thus I have a 457, a 403b, a Roth, and a traditional IRA. I contribute $4000 to the Roth each year, and then split the rest of the savings between the 457 and 403. We have a number of mutual fund options, and also a guaranteed savings account that pays about 4%, with no fees!

I plan to leave a good chunk of money in the 457, because as others have said, there is no penalty for early withdrawl...and I can't imagine retiring as late as 59 1/2!

 

[Bookm]

Greetings Ginger:

The 457 is my husband's deferred compensation plan.  He will be retiring in October. From the brochure, it states if we don't pick a payout option before he dies, then the entire lump sum goes to the beneficiary.  Obviously, that would trigger one huge tax bill if we don't pick a payout option beforehand.  (I am still wondering if the beneficary can then decide to take the withdrawals in a monthly payment instead of a lump sum.  Will have to investigate further.)

Each plan of course has to abide by IRS rules and guidlines. These rules more or less explain how far each plan can go, say, when offering different pay-out options. Each plan can then choose how many of those options to offer their employees. Their scope is usually spelled out in the plan document and/or master trust. Not all plans are the same. For instance some plans allow payout options to be changed once or even twice per year. Some allow one selection that's irreversible. You'll have to check with your husband's particular plan to see what they allow. But know that the beneficiary is permitted under IRS rules to select the payout option. Again, it's just a matter of whether the plan adopted the breadth of those gov't rules.

Bookm

 

[Bookm]

My philosophy includes diversification, and thus I have a 457, a 403b, a Roth, and a traditional IRA.  I contribute $4000 to the Roth each year, and then split the rest of the savings between the 457 and 403.  We have a number of mutual fund options, and also a guaranteed savings account that pays about 4%, with no fees.

Diversity among investment vehicles as well as individual investments themselves. Very wise indeed.

Bookm

 

[flipstress]

Hi, Ginger.

I contribute to our 457 plan at work and last year, I asked our plan admin rep about rolling over to an IRA if I leave employment.  (I was thinking of the lower costs at Vanguard and being able to slice and dice, while currently I just invest in the Broad Market Index fund in my 457 plan because it has the lowest expense ratio of funds offered to us.) 

The answer was that yes, IRA rollovers can be done upon termination of employment.

His arguments for not rolling over were:
1) already-mentioned:  not having to wait 'til-59 1/2 to withdraw
2) assets in an IRA do not provide as much protection against personal bankruptcy as do employer-sponsored plans

I'll decide when I have to, when I leave this employer (upon ER, hopefully).

 

[Searcher7]

There is one issue you may wish to consider. It relates to who is "technically" the owner of the funds invested in the retirement assets.

In some government employer plans, the "fine print" in the 401(k) plan specifies the government entity sponsoring the plan is the "owner." In contrast, ownership of 457 funds remain with the individual investors.

This issue probably wouldn't ever become a problem unless the government agency went bankrupt such as occurred in Orange County, California several years ago.

Good luck!

 

[bosco]

what kind of options do you have? I work for the state of wisconsin, so I have pretty good options.

the options I have are here

http://www.state.ak.us/drb/dcp/dcp-investment-options-33105.shtml

the expense ratios are here

http://www.state.ak.us/drb/dcp/pdf/ioag605.pdf

the S&P 500 choice is good, with low expense ratio. The T Rowe Price small cap is not too bad also but it's actively managed and has a .71 expense ratio. Would prefer an index fund.

But they changed from an MSEAFE index to the "Brandes International Equity fund" which has pretty high expense ratios (1.18%). Because I am retiring in Canada, I don't want to be heavily weighted in US equities so I bite the bullet and put quite a bit in this. It's done pretty well, but I sure would prefer an MSEAFE index fund (why they changed from that to this I don't know).

Their cash-equivalent fund is one of the better offerings they have.

I prefer to invest in sector funds and AIM them (an algorythm that uses the volatility in a systematic way to manage the risk). I have been quite successful with this approach.

So....it comes down to...do I want flexible withdrawal or do I want more choices. I'll probably choose a combination of both. I don't think it is all-or-nothing in a rollover.

 

[maddythebeagle]

wow bosco, not a lot of choices there. Are there any participation fees? I think that is something to consider also, but I dont think you can beat 0.02% on the sp 500 index in an ira. I think the total stock market etf is in the 0.15%-0.20% range. 

I dont know if folks have done this, but to lobby for inclusion of choices.

I looked at my plan a little closer. They offer 3 withdrawal options (none appear to have much for adjustment). It looks like the best one is a set amount annually with and adj. for inflation.

 

[bosco]

wow bosco, not a lot of choices there. Are there any participation fees? I think that is something to consider also, but I dont think you can beat 0.02% on the sp 500 index in an ira. I think the total stock market etf is in the 0.15%-0.20% range.

I dont know if folks have done this, but to lobby for inclusion of choices.

I looked at my plan a little closer. They offer 3 withdrawal options (none appear to have much for adjustment). It looks like the best one is a set amount annually with and adj. for inflation.

I have lobbied, and they actually have expanded over what they used to have. Still, it's not a lot of choice. The withdrawal options are very flexible, however.

There are participation ("administrative") fees, but they are very minor. Can't remember exactly what they are but they are a flat fee, not based on portfolio size, and don't seem to amount to much although obviously I'd prefer not to have them.

 

[Chonder]

I am plugging everything I can into my Ohio 457 plan...because of the NO PENALTY ability to withdraw at any age. I also have a 401k from a previous job, and a pers account, but both of these are stuck til I hit 55 years old. I plan on using the 457 to fill the gap between ER and 55, then tap the other two. Mine has $2/quarter fees that are waived usually, and also has some satisfactory Vanguard funds. I love the age flexibility...they act like it is MY MONEY...what a concept!!

 

[packrat44]

You can roll a 457b plan over to an IRA, but the 457b plan is a lot more liberal in withdrawals. You don't have to wait till age 59 1/2. After looking over the differences between IRAs and 457b plans, I decided not to do a roll over.

I also have a 457b plan. It can be rolled into an IRA, as stated. But the 457 is more flexible in its withdrawal possibilities.

HOWEVER, at least for my 457, if I roll it into an IRA, I can change custodians and get much more options in what I can invest in. If I leave it as a 457, I have more withdrawal flexibility, but very few choices in how I want to invest since I must leave it in the same limited program with the same custodian. As it was explained to me, I may not switch custodians unless I take it out of 457 status.

choices, choices...

I had a TSP (457) account which I liked very much because of the extremely low costs (much lower than Vanguard) and the flexibility. However, I wanted to convert to a ROTH IRA. That required rolling the funds to a Traditional IRA, then converting. If it were not for the ROTH conversion, I would have left them in the TSP account.