Can You Roll a 401(k) Into a 457 Plan?

When changing jobs, you may have retirement savings in a former employer’s 401(k) plan. If your new employer offers a 457 plan, you might consider consolidating your accounts. The ability to move funds from a 401(k) into a 457 plan depends entirely on the type of 457 plan your new employer provides. Understanding this distinction is the first step in determining your options.

Understanding 457 Plan Types

The ability to roll a 401(k) into a 457 plan hinges on the plan’s classification. The primary type is a governmental 457(b) plan, offered to employees of state and local governments, including public school teachers, city administrative staff, and police officers. Funds contributed to a governmental 457(b) plan are held in a trust or custodial account for the exclusive benefit of employees and their beneficiaries. This structure provides a layer of protection for the assets.

The assets are segregated from the employer’s general assets, meaning they are not subject to the claims of the employer’s creditors in the event of financial difficulty. This legal separation is a feature that governmental 457(b) plans share with 401(k)s.

The second type is a non-governmental 457(b) plan, sometimes called a “top-hat” plan. These are offered by certain tax-exempt, non-profit organizations, such as private hospitals or charities. Unlike their governmental counterparts, these are non-qualified deferred compensation plans where assets legally remain the property of the employer until distribution. Because the funds are not held in a separate trust, they are subject to the claims of the employer’s general creditors, meaning the assets could be at risk if the organization faces bankruptcy.

Rollover Eligibility Rules

The rules for rolling a 401(k) into a 457 plan are directly tied to the plan’s structure. For individuals with a governmental 457(b) plan, the rules are favorable. These plans are permitted to accept rollovers from other eligible retirement plans, including 401(k)s, 403(b)s, and traditional IRAs.

When funds from a 401(k) are moved into a governmental 457(b), they must be accounted for separately. This is important because the rolled-in funds retain some characteristics of their original plan, such as the 10% early withdrawal penalty for distributions taken before age 59½. This penalty does not apply to the regular employee contributions in a 457 plan after separation from service.

Conversely, non-governmental 457(b) plans operate under a different set of regulations. Due to their status as non-qualified plans where assets are not held in a protected trust, they are not allowed to accept rollovers from qualified plans like a 401(k). This restriction prevents the commingling of qualified, trust-protected assets with the non-qualified, employer-owned assets of a non-governmental 457(b) plan.

Information Required for a Rollover

If you have a governmental 457(b) plan that accepts rollovers, the next step is to gather information. From your old 401(k) plan, you will need the plan administrator’s name and contact information, your account number, and the total vested balance of your account. The vested balance is the amount you are entitled to take with you.

Next, contact the administrator of your new governmental 457(b) plan. You must confirm that their specific plan accepts incoming rollovers from 401(k)s, as some plans may have restrictions. Obtain the exact legal name of the 457(b) plan, the plan number, and the correct mailing address for receiving rollover checks.

With this information, you can obtain the required “rollover request” or “distribution” form from your former 401(k) provider. This form will require your personal details and specific instructions for the direct rollover, using the information from your new 457(b) plan administrator.

The Rollover Process

Once you have the necessary forms, you can initiate the rollover. The most common method is a direct rollover, where your old 401(k) plan administrator sends the funds directly to your new governmental 457(b) plan administrator. This transfer can happen via check or electronic transfer, and no taxes are withheld.

An alternative is the indirect rollover. In this scenario, the 401(k) administrator sends a check payable to you, minus a mandatory 20% federal tax withholding. You then have 60 days to deposit the full original amount into your new 457(b) plan. To avoid being taxed, you must make up the 20% from your own funds and then seek a refund of the withheld amount when you file your annual tax return.

The first step is to submit the completed rollover form to your old 401(k) administrator. After a processing period, which can range from a few days to several weeks, your old plan should provide confirmation. The final step is to verify with your new 457(b) plan administrator that the funds have been received and credited to your account.

Alternatives if a Rollover is Not Possible

If you have a non-governmental 457(b) plan or your governmental plan does not accept rollovers, you have other options for the money in your old 401(k). One option is to leave the funds in your former employer’s 401(k) plan. You are permitted to do this as long as your vested balance is above a certain threshold, often $5,000. This allows your investments to continue growing tax-deferred, though you will be subject to the plan’s investment options and fees.

Another choice is to roll the 401(k) funds into a Traditional IRA. This gives you broad control over your investment choices and can consolidate assets if you have other IRAs. You could also choose to roll the funds into a new 401(k) plan at a different, future employer, should that plan allow for incoming rollovers.