How Do I Transfer 457 Funds to an IRA?

A 457 plan is a retirement plan designed specifically for state and local government workers. Some nonprofit employers also provide this kind of retirement plan. The 457(b) is the more common plan, usually offered to local and state government employees. However, some non-government workers and highly -compensated government employees can access to the 457(f) plan.

Similar to 401(k) and 403(b) plans, 457 plans allow employees to make tax-deductible contributions to various investment options that grow tax-deferred until the money is withdrawn. However, as with all qualified retirement plans, 457 plans carry a host of regulations. These regulations influence contributions, distributions, and transfers. So, you need to bear these rules in mind when transferring 457funds into traditional individual retirement accounts (IRA).

IRS Rules on Transfers

The IRS generally permits transfers or rollovers between tax-deferred accounts. In this case, both the individual retirement account 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. Therefore, theoretically, you can transfer your funds between these accounts.

However, your ability to perform transfers and rollovers assumes that none of the plans involved in the transfer carry any restrictions. For example, if you have a 457(b) plan in a private tax-exempt organization, you can only transfer your funds to another non-governmental retirement plan. In the case of a SIMPLE IRA, you can only do rollovers from a 457 plan after two years of having the IRA account. It is also worth noting that you are usually allowed one rollover in ​12 months​.

And with a 457(f) fund, transfer options do not exist.

But the most significant restriction of all is that if you are still working for a governmental agency that provides you with a 457(b) plan, you cannot perform a rollover into an IRA. So, transfers from 457 accounts are best done after retirement.

How to Transfer 457 Funds to an IRA

Below are tips you can implement when transferring 457 plan funds to an IRA.

  • To transfer your 457 into an IRA, you will have to contact the administrator of your 457 plan to find out if it is possible to do so in the first place.
  • In the meantime, determine which IRA is best for your fund transfer needs.
  • When you receive the go-ahead, request, and process the necessary paperwork. You will have to provide information about your IRA, 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 will 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 will owe ordinary income tax on the entire amount.

Why Transfer Funds From a 457 Plan?

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 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.