When it comes to retirement planning, 457 plans and IRAs are two of the most popular investment vehicles. While both plans offer tax-advantaged retirement savings, there may be reasons why an individual wants to roll over their 457 plan to an IRA. In this article, we will discuss if rolling over a 457 plan to an IRA is possible, the restrictions of 457 plans, the advantages of rolling over to an IRA, and the steps to do so.
Rolling over a 457 plan: Is it possible?
Yes, it is possible to roll over a 457 plan to an IRA, but it depends on the rules of the specific 457 plan. Unlike 401(k) and 403(b) plans, which have similar rules and regulations, 457 plans can vary depending on whether it is a governmental or non-governmental employer. In general, most 457 plans allow for rollovers to IRAs, but it is essential to check with the plan administrator to ensure it is allowed.
Understanding 457 plans and their restrictions
457 plans are non-qualified deferred compensation plans for state and local government employees and some nonprofit organizations. These plans are similar to 401(k) and 403(b) plans, but there are some differences. For example, 457 plans do not have an early withdrawal penalty if you leave your job before age 59 1/2, but you may have to pay income tax on the distribution. Additionally, 457 plans may have different contribution limits and catch-up provisions than 401(k) and 403(b) plans.
Advantages of rolling over to an IRA
One of the primary advantages of rolling over a 457 plan to an IRA is the flexibility it offers. IRAs typically have more investment options than 457 plans, which can be beneficial for someone looking to diversify their portfolio. Additionally, rolling over to an IRA may provide more control over investment choices, as 457 plans are often limited to the investment options offered by the plan. Finally, an IRA may have lower fees than a 457 plan, which can lead to more significant long-term savings.
Steps to rollover a 457 plan to an IRA
The first step in rolling over a 457 plan to an IRA is to check with the plan administrator to ensure it is allowed. Once confirmed, you will need to open an IRA account with a brokerage firm or financial institution. Next, you will need to complete the rollover paperwork, which some financial institutions will help you with. Finally, you will need to decide how to invest the funds in the IRA, taking into consideration your risk tolerance and overall investment strategy.
While rolling over a 457 plan to an IRA can offer a lot of benefits, it is essential to understand the rules and regulations of both plans. Before making any decisions, it is always best to consult with a financial advisor to ensure that it is the right decision for your individual financial situation. By doing so, you can better prepare for retirement and ensure that you are maximizing your savings potential.