Can I Transfer My 457 to Another Company?

A 457 plan is a deferred compensation retirement plan for certain public sector and non-governmental tax-exempt organization employees. These plans allow eligible employees to defer a portion of their income until retirement or separation from service. Governmental and non-governmental 457(b) plans have different rules regarding contributions, distributions, and transfers. Transferring funds from a 457 plan is often possible, but the feasibility and procedures depend on the plan type and your employment status.

Understanding 457 Plan Transfer Eligibility

Transferring funds from a 457 plan depends on whether it is a governmental or non-governmental 457(b) plan. Governmental 457(b) plans are established by state and local governments for their employees. These plans offer flexibility for rollovers to other retirement vehicles.

A governmental 457(b) plan permits rollovers to various qualified retirement plans. You can transfer funds to another governmental 457(b) plan, especially if you move to a new public sector employer. Funds can also be rolled over into a Traditional or Rollover IRA, or other qualified plans like a 401(k) or 403(b), if the receiving plan accepts them. Separation from service with the sponsoring employer is often a condition for these transfers.

Non-governmental 457(b) plans are offered by tax-exempt organizations. These plans have stricter rules regarding transfers and distributions, with highly restricted transferability compared to governmental plans.

Funds from a non-governmental 457(b) plan can only be transferred to another non-governmental 457(b) plan. Rolling over these funds into a Traditional IRA, 401(k), or 403(b) plan is treated as a taxable distribution, not a tax-free rollover. This means the entire amount is immediately subject to ordinary income tax rates in the year of the transfer.

Steps for Completing Your 457 Transfer

Initiating a 457 plan transfer requires preparation and coordination with plan administrators. Gather essential information about your current 457 plan and the prospective receiving account. This includes identifying the current plan administrator or custodian, your account number, and their contact details. For a new 457 plan, IRA, or 401(k), you will need the new plan administrator’s name, the receiving account number, and their instructions for incoming rollovers.

A direct rollover is advisable for fund transfers. In a direct rollover, funds move directly from your old 457 plan administrator to the new account custodian. This avoids potential tax complications, such as the mandatory 20% federal income tax withholding that applies to indirect rollovers. An indirect rollover also requires depositing funds into a new retirement account within 60 days to avoid taxation and penalties.

To begin the transfer, contact your current 457 plan administrator for their transfer forms. Simultaneously, contact the receiving plan or IRA administrator to inquire about their requirements for accepting rollovers and to obtain incoming transfer forms. Both institutions will have specific paperwork.

Complete all required fields on the transfer forms accurately, including the payee designation, which should be the new custodian “for the benefit of” your name. Specify the exact amount to transfer, whether partial or full. Submit forms according to each administrator’s instructions, which may involve mailing, faxing, or uploading. Monitor the process, as transfers can take days to weeks depending on the institutions.

Navigating Key Transfer Implications

Consider several implications before finalizing a 457 plan transfer. Tax implications vary based on the 457 plan type and destination account. For governmental 457(b) plans, rollovers to an IRA or another qualified plan are tax-free, meaning no immediate income tax is due.

However, tax consequences differ for non-governmental 457(b) plans. Transferring funds from these plans to an IRA or 401(k) is treated as a taxable distribution, not a tax-free rollover. The entire amount transferred becomes subject to ordinary income tax rates in the year of the transfer.

Another consideration is the 10% early withdrawal penalty. Distributions from a 457(b) plan are not subject to this penalty if taken after separation from service, regardless of age. However, rolling these funds into a 401(k) or IRA can change this. Once funds are in a 401(k) or IRA, future distributions before age 59½ may be subject to the 10% penalty, unless an exception applies. This penalty-free withdrawal feature of 457(b) plans can be forfeited if funds move to a plan with different distribution rules.

Beyond tax considerations, evaluate the receiving plan’s distribution rules. While 457(b) plans permit penalty-free withdrawals upon separation from service, 401(k)s and IRAs impose the 10% early withdrawal penalty for distributions before age 59½, absent specific exceptions. This ensures you maintain access to your funds consistent with your financial planning.

Compare the investment options, administrative fees, and expense ratios of your current 457 plan with the prospective receiving plan. A new IRA or 401(k) might offer different investment choices and fees. Consider the level of creditor protection. Plans qualified under ERISA, such as many 401(k)s, offer strong federal creditor protection, while IRA protection varies by state law.