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457b non-governmental - withdraw strategy
Old 08-07-2019, 05:08 PM   #1
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457b non-governmental - withdraw strategy

I fully retired 8/2/19 and am planning to pull out about $55k from a 457b. The non governmental 457b is different from a gov't 457b in that I don't officially own the funds so I want to get it out fairly quickly. No real concern of the entity going down in flames and losing my deferred comp to a secured creditor. But I'd still like to get it moved soon. What I learned in my separation paperwork is that I will get a W-2 not a 1099 for the $. I want to manage the amount in conjunction with DW pension and rental income and still be able to convert from 401k's into Roth IRA's and not exceed the 78,950 that will keep us in the 12% tax bracket. So intend to spread it out over 3-4 years.

I don't really see us needing the money in the next 5 years so I am wondering if it would make sense to max out the Roth IRA contribution for both me and DW? Don't see any sense in any other tax deferred account as I am getting taxed on it via the W-2. As it's going to show on a W-2 seems like this would be allowable.

I've tried the google but there is a dearth of info on non-governmental 457b's. I find lots of info on gov't 457's but don't want to assume they are the same, as I'm aware there are significant differences in other areas.

Anyone here have experience with non-gov't 457b's that could weigh in?

I'm 55 DW is 51. I've tried to give the basics without over explaining - but sure I've missed something so hit me with questions if needed.
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Old 08-07-2019, 06:33 PM   #2
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The 457-b that you have a deferred compensation arrangement. Yes, you will get a W-2 since this is considered wages. Is the money to be paid in this tax year or is one of your withdrawal choices to set a date? Do you want the funds this year or next? You may want to meet with a CPA to consult how this will impact your total tax picture. It may be worth the fee to an accountant because you cannot get a re-do on these kind of withdrawals. Go to irs.gov and type in the search box nongovernmental 457(b). There is plenty of information.
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Old 08-07-2019, 07:04 PM   #3
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I pushed them to come to me starting next year, had too much already earned this year. Taking three installments, with some carryover into year 4, depending on market returns.
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Old 08-08-2019, 04:23 AM   #4
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Since it is W-2 income could you further defer the tax if you want to or need to by making deductible IRA contributions? Not advocating it but it might be a possibility.
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Old 08-08-2019, 05:51 AM   #5
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I considered the regular IRA, but my DF intends to pass on a pretty large sum which the dividend/ interest income would push us well past the 78,950. Trying to move as much as possible into Roth IRAs while I can keep income lower and stay in the 12% bracket. I really don't like to count his $ in any of my RE analysis but also don't want to ignore the issue to my tax detriment.
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Since it is W-2 income could you further defer the tax if you want to or need to by making deductible IRA contributions? Not advocating it but it might be a possibility.
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Old 08-08-2019, 09:31 AM   #6
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^^^^ Makes perfect sense since you expect to be in a higher tax bracket later when you would be withdrawing that money.
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Old 01-21-2021, 10:48 AM   #7
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Resurrecting this old thread as I learned an expensive lesson about non-governmental 457b today. Yes I did get a W2, but they code an equal amount in box 1 "wages" and also in box 11 "non-qualified plans" the effect is that I am NOT able to count this as earned income for eligibility for contributions to either Roth IRA or traditional IRA.

On the surface seems like this should be allowed as it was taxed as income in 2020, but as I contemplate it more, I guess that if it was included in my income back when I actually earned it I would have made too much to be allowed in the ROTH club, so probably not right to circle back and now put in the ROTH.

The somewhat sucky part is any earnings on the overcontribution need to be withdrawn as well as the $7k over contribution. For me that was $3,500...ugh. Happy to have made such a profit but would really have liked that to remain in the Roth!

As embarrassed as I am to admit my error; I felt I needed to update this old thread so that misinformation doesn't turn up in someone's search of this topic.
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