State and local governments plus non-profit organizations have the ability to offer employees 457(b) deferred compensation retirement savings plans. A 457 plan allows an employee to set aside a portion of her salary before taxes to save for retirement. If an employee leaves employment with her current employer or retires, the money in a 457 account usually can be transferred into an individual retirement account, and any income tax due will be deferred until withdrawals are made from the IRA.
1. Open an IRA to receive the funds from your 457 account. IRAs can be established with a bank, mutual fund company or investment brokerage. The location of the IRA depends on how you plan to invest the money after the transfer.
2. Contact the office that administers your 457 account and ask for a direct rollover request form. The form may be a combination of distribution and direct rollover request choices. Using a direct rollover sends the money directly to your new IRA.
3. Complete the direct rollover request form and return it to the 457 plan administrator. Ask the customer service representative how long the transfer should take. If you have mutual fund shares in your 457 account, the shares will be converted to cash and the cash balance sent to the IRA custodian.
4. Follow up by telephone with the 457 administrator and new IRA company to make sure the 457 funds have been sent and received. Once the money is in your IRA, you can invest the former 457 proceeds.
- If you do not request a direct rollover and your 457 money is paid out directly to you, the money can still be deposited into an IRA and retain the tax-deferred status. The money must be deposited to an IRA within 60 days of when the 457 plan issued the check.
- You can transfer your 457 funds to a traditional IRA and continue to defer income taxes or into a Roth IRA. With the Roth IRA income taxes are due immediately, but the account then grows tax-free rather than tax deferred.
- Keep a copy of your 457 account statement and the direct rollover request. Make a note of everyone you talk to until the transfer is complete.
- If you are not leaving your employer, your 457 account cannot be transferred into an IRA. The money must stay in the 457 plan as long as you are employed with that employer.
- The type of 457 plan that can be transferred to an IRA is a 457(b) plan. Some organizations establish 457(f) deferred-compensation plans, which are not eligible for rollover to an IRA. Most plans are of the 457(b) variety, but check with the plan administrator before starting the direct rollover process.
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