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On January 1, 2002, you as a participant in a 457 tax-deferred
retirement plan are, for the first time, permitted to
roll your money over into an IRA, 401(k) or 403(b) when you
retire or change jobs. This portability gives you more
options and control over your money.
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The
different plans, 457, 403(b) and 401(k), are named after
a different sections of the IRS Tax Code. Each plan
has its own advantages and disadvantages.
Previously,
457 plan participants were not allowed rollovers to
the other plans. Now they are.
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Although
the new rules became effective on January 1, 2002, some 457
plans may not be implemented immediately. Check with your
Human Resources Department or plan administrator to get details.
Rolling
Over Your Account to an IRA has its Advantages:
- Your
money will continue to grow tax-deferred until you need
it
- Gives
you the flexibility to withdraw your funds after age 59
the way you want without restrictions
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Rolling
Your Money Over into a New Employer's Plan
Advantages:
- You
may be allowed to borrow money on your 403(b).
The danger here is that a loan could result in setting you
back on your retirement goals. Also, keeping your funds
all in the same place makes it more convenient for you in
tracking and adjusting your plan's asset allocation.
Disadvantages:
- In
general, employer 457 plans are not as flexible as IRA's
(which is why IRA's are rolled over so often.) The new plan's
rules now govern your money when you roll over. With a 457
plan, you can withdraw money before age 59, but withdrawing
money from a 401(k) or 403(b) is generally not accessible without
penalty before age 59 1/2.
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Doing
a Rollover
First,
determine your eligibility to withdraw your money. Remember,
you can only rollover your money once you have retired, or
left your current employer. The only exception would be a
case of extreme hardship as defined by your plan.
If
you are eligible, a "trustee-to-trustee transfer" is the easiest
way to do a rollover. The money is sent directly by your old
plan's custodian to your new IRA custodian. Withholding tax
is avoided. If you elect not to do a "trustee-to-trustee transfer",
you will receive the money but you will pay a 20% tax as a
penalty. Even if you meet the required 60-day deadline for
re-depositing the money into an IRA, taxes will still be withheld
taxes until the end of the calendar year. If you want a full
refund, you must come up with the money that was withheld
in taxes and deposit it into your IRA within 60 days. Failure
to do so will mean that you'll be penalized. See your plan
administrator for complete details.
The
funds should be kept separate in a plan that is designated
a "rollover IRA" (or a "conduit IRA") to show that all of
the funds in the account have come from an employer-sponsored
plan. Currently, this is necessary if you want to roll the
funds over into a new employer plan in the future. Rollover
IRA's work the same as any other IRA.
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