457 to IRA rollover

[fosterscik]

I have a 457 deferred compensation plan that I want to rollover to a traditional IRA. It's allowed by my plan after separation from service.

Now the question: Is there any reason to roll this money into an existing traditional IRA at Vanguard? The existing IRA and 457 were funded 100% with tax deferred money. Anyone see any reason not to do this and establish a separate IRA for this money?

 

[Koolau]

No expert here - IIRC, you must roll 401(k) into a tIRA before converting funds to Roths. I'm guessing it's the same with 457's. That would be a good reason to change. Also, Vanguard has more funds and usually at good prices compared to most 401(k)s - also assuming same with your 457.

I don't know if 457's are treated differently than 401(k)'s in this respect, but IIRC, the 401(k) is the safest asset when it comes to being claimed by someone else (e.g., in a law suit.) I am keeping my 401(k) where it is (12 years following ER) and the protection from claims is only one reason. So that's one reason NOT to convert to a tIRA from a 401(k). You'll need to check on 457. Good luck.

Check it out since I'm no expert and because YMMV.

 

[bw5972]

I have a 457 deferred compensation plan that I want to rollover to a traditional IRA. It's allowed by my plan after separation from service.

Now the question: Is there any reason to roll this money into an existing traditional IRA at Vanguard? The existing IRA and 457 were funded 100% with tax deferred money. Anyone see any reason not to do this and establish a separate IRA for this money?

Not the deciding factor but you may want to shop rollover offers across brokerage houses. Example of one current offer:


“This offer is valid for new XXXXX Securities retirement accounts and excludes XXXXX Securities brokerage and XXXXX Bank accounts. Other restrictions may apply.

Cash credits for deposits or transfers of new funds or securities from accounts outside of XXXX will be made as follows:

$1,000,000 or more will receive $2,500;
$500,000–$999,999 will receive $1,500;
$250,000–$499,999 will receive $1,000;
$100,000–$249,999 will receive $500;
$25,000–$99,999 will receive $200.

New funds or securities must be deposited or transferred within 45 days of enrollment in offer, and must be from accounts outside of XXXXX. The credit will appear in your account within one week of the close of the 45-day window. Multiple deposits made to eligible accounts will be aggregated and will receive a credit on a pro-rata basis.”

 

[euro]

I have a 457 deferred compensation plan that I want to rollover to a traditional IRA. It's allowed by my plan after separation from service.

Now the question: Is there any reason to roll this money into an existing traditional IRA at Vanguard? The existing IRA and 457 were funded 100% with tax deferred money. Anyone see any reason not to do this and establish a separate IRA for this money?

If both were funded the same way (i.e. both tax deferred, or both "traditional after tax"), then I see no reason to create a separate IRA. Just roll it into the existing one.

 

[fosterscik]

Thanks Koolau and bw - both good points to consider. bw's point may make what I actually want to ask moot.

What I was really asking (but phrased very badly) was whether I should roll the money into an existing IRA at Vanguard (commingle funds) or open a new additional IRA at Vanguard (so end up with two separate IRAs at the same broker: my existing IRA plus the roll-over IRA).

 

[Blue Collar Guy]

I have a 457 deferred compensation plan that I want to rollover to a traditional IRA. It's allowed by my plan after separation from service.

Now the question: Is there any reason to roll this money into an existing traditional IRA at Vanguard? The existing IRA and 457 were funded 100% with tax deferred money. Anyone see any reason not to do this and establish a separate IRA for this money?

Must you roll it? I have a 457. I was told that if I roll it to an IRA i have to wait till 59.5 to get it penalty free. The 457 you can access the minute you retire no penalty.

 

[fosterscik]

Euro - that was my position, just wanted to make sure I wasn't missing something that would come back to bite me.

BCG - I could leave it where it is but fund choices are poor and the plan charges a monthly fee on top of any fund fees. It's not a huge amount ($5/mnth) but I don't like it on principle. Good point about early distributions, but I have plenty of funds that can be drawn before the "magic" penalty free age.

 

[euro]

Euro - that was my position, just wanted to make sure I wasn't missing something that would come back to bite me.

BCG - I could leave it where it is but fund choices are poor and the plan charges a monthly fee on top of any fund fees. It's not a huge amount ($5/mnth) but I don't like it on principle. Good point about early distributions, but I have plenty of funds that can be drawn before the "magic" penalty free age.

If your fund choices are bad in the 457 then it's likely better to roll it (unless, as others pointed out, there is a chance you may need the funds earlier or a chance that someone comes after your estate).

 

[Travelfreek]

457 - don't rollover to IRA if want to avoid 10% penalty if you want money before 55

I have a 457 deferred compensation plan that I want to rollover to a traditional IRA. It's allowed by my plan after separation from service.

Now the question: Is there any reason to roll this money into an existing traditional IRA at Vanguard? The existing IRA and 457 were funded 100% with tax deferred money. Anyone see any reason not to do this and establish a separate IRA for this money?

So, my daughter worked as a nurse for a couple of years and accumulated $30k in a 457 account (university hospital in CA). She then resigned a few years later at age 27 and moved overseas. At the time, I encouraged her to move the 457 over to an IRA in Fidelity thinking that she could withdraw it without penalty when she wanted to and it would just count as taxable income. I just learned yesterday that had she left it in the UC Savings Plan in the 457 account, she could have withdrawn it without penalty now that she's separated from the UC, but once it was put into the Traditional IRA account at Fidelity, it took on the characteristics of the Traditional IRA. Ugh!! I'm so mad at myself. I'm also a little annoyed that Fidelity didn't warn us that doing that would eliminate the no penalty withdrawal once she was separated. Knowing that the 457 has no age requirement for withdrawal (just that you have to be separated) was the reason I encouraged her to use this method of saving. I suspected she wasn't going to work there 30 years. So, be cautious about rolling over the 457 fund from your employer if you think you'll be separated before age 55 or 59 1/2. I hope this post makes sense.

So, if you have access to a 457 and you plan to FIRE before age 55/59 1/2, the 457 is a great way to accumulate money that will be penalty free for withdrawal after you resign at a young age or any age below 55 or 59 1/2.

 

[PERSonalTime]

+1
I agree with Travelfreak. Keep the 457 for maximum access to your money. Rolling over to an IRA locks up your money until age 59 1/2.