A 457 plan is a retirement plan designed specifically for state and local government workers. Similar to 401(k) and 403(b) plans, 457 plans allow employees to make tax-deductible contributions into various investment options that grow tax-deferred until the money is withdrawn. As with all qualified retirement plans, 457 plans carry a host of regulations regarding contributions and distributions, including transfers.
Both individual retirement accounts and 457 plans are tax-deferred investment accounts. As such, neither the contributions to these accounts nor the earnings generated within have ever been taxed. The IRS generally permits transfers between tax-deferred accounts, assuming none of the plans involved in the transfer carry any restrictions.
To transfer your 457 into an IRA, you'll have to contact the administrator of your 457 plan to request and process the necessary paperwork. You'll have to provide information about your IRA account, such as the exact name on the account, the address of your IRA custodian and your account number. Trustee-to-trustee transfers are the cleanest and quickest, as your funds are transferred electronically directly from your 457 plan to your IRA. However, you can also request a check from your 457 plan and manually deposit it yourself.
If you take a physical check from your 457 plan, you'll only have 60 days to get that money deposited in your IRA or else your transfer will be considered a distribution for tax purposes.
Trustee-to-trustee transfers do not trigger any tax consequences, as your money essentially stays within its tax-deferred wrapper. However, if you take a check out of your 457 plan and fail to re-deposit it within the 60-day window, you'll owe ordinary income tax on the entire amount.
Restrictions & Benefits
While most employers allow 457 rollovers, you can't always access your money whenever you'd like. Typically, you can't transfer money out of your 457 until you retire or otherwise leave your job. However, one of the benefits of a 457 plan is that if you retire before age 59 1/2, you can take your money out without facing the 10 percent early withdrawal penalty typical of most retirement plans.
When you transfer your 457 to an IRA, you'll typically have more control over the individual investments within the account. Whereas a 457 plan will traditionally offer a limited number of mutual fund-type options for investment, you can usually buy any type of stock, bond or mutual fund you'd like within an IRA.
If you're not familiar with managing your own money, you might consider hiring a financial adviser once your money rolls over into an IRA.
John Csiszar earned a Certified Financial Planner designation and served for 18 years as an investment counselor before becoming a writing and editing contractor for various private clients. In addition to writing thousands of articles for various online publications, he has published five educational books for young adults.