Message Font: Serif | Sans-Serif
No. of Recommendations: 0
Greetings, Boxout, and welcome. You asked:

This question has been out there for a while. Does anybody have any answers. My understanding is that 457 plans can now be rolled to IRAs, but I would like to know if there are any special rules (like there is ever anything that doesn't have special rules).

That was asked and answered in the original query. You cannot transfer 457 plan monies to a traditional IRA this year, but come January 1 of next year you may do so. For details, see my article "Even More Money for Retirement" at

Specifically: I am planning on retiring at the end of December. I will need to make my 457 election (within 60 days I think). Will rolling to an IRA be an option? If so, it seems like that would be better than leaving it in the 457 plan.

Again, after Jan 1 you may do that. When you do, you are then subject to all rules applicable to traditional IRAs. I'll leave the "better" decision to you.

My understandingg is that from an IRA I could gradually shift (at least part of) the balance into a Roth IRA, paying taxes on what I shift as I go along. If I later withdraw the balance, or (more likely) die and leave it to my kids, the Roth portion would be tax free. Otherwise it would be a (high tax bracket) lump sum distribution.

All of what you say is true. Ultimately, your kids would get Roth monies tax-free regardless of when you died even if that was within the five tax-years of opening that account. All they would have to do is wait to take a distribution until that period had passed because they have five years to clear the account. They could also take it over their life expectancies and only pay taxes on the first few years' of distributions. Also, be aware that in a traditional IRA they won't have a problem of "lump sum" taxation, either. That's because they may again take it over their life spans as the beneficiaries of that IRA. The lum sum problem only exist for you and them if the money must come from the 457 plan.

My understanding is that in addition to whatever advantages the Roth IRA might have, all IRAs have more flexibility with regard to withdrawals than 457 plans (e.g. you can withdraw a larger than normal amount at any time, and maybe a smaller than normal amount in some years).

The 457 plan will have its own distribution rules. With the IRA, traditional or Roth, you will generally have more flexibility. The only problem there would be with the traditional IRA when you would have a minimum required distribution problem on your reaching age 70 1/2. With a Roth, during your life there is no minimum. After your death, both IRAs will have minimum distribution requirements for your children beneficiaries.

P.S. I will be 58 1/2 when I retire, but I guess if I want to withdraw some money in 2002, I could leave that much in the 457 plan or take a partial lump sum distribution in that amount.

If you transfer all the money to an IRA, then you will have to wait until 59 1/2 to get at it penalty-free unless you take it under one of the eight allowable exceptions. OTOH, you could take just enough out of the 457 plan to support you until you are 59 1/2, and put the rest into the IRA. The money you keep will NOT be penalized because you may take 457 plan money at any age free of penalty. All you will have to worry about is ordinary income taxes.

Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.