How to Rollover a 457 Plan to a 401k

A 457 plan is a type of deferred-compensation retirement plan available to some governmental and certain non-governmental employers. A 401(k) is a retirement savings plan sponsored by for-profit employers. Moving funds from a 457 plan to a 401(k) is known as a rollover, a process that allows for the transfer of retirement assets between different types of accounts while maintaining their tax-deferred status.

Determining Rollover Eligibility

The ability to roll over a 457 plan to a 401(k) depends on the type of 457 plan you have. There are two primary kinds of 457(b) plans: governmental and non-governmental. A governmental 457(b) plan, offered to employees of state and local governments, can be rolled over to a 401(k) or other qualified retirement plans.

A non-governmental 457(b) plan, offered by tax-exempt organizations like non-profit hospitals or charities, cannot be rolled into a 401(k) or an IRA. Rollovers from these plans are restricted to another non-governmental 457(b) plan. The reason for this distinction is that assets in a non-governmental plan are technically owned by the employer until distributed and are subject to the claims of the employer’s creditors.

A less common 457(f) plan is ineligible for rollovers into any other type of retirement account. For eligible governmental plans, a rollover is permitted only after a “triggering event” occurs. The most common triggering event is separation from service, meaning you have left your job with the employer who sponsors the 457 plan.

Information and Decisions for the Rollover

You will need the account numbers for both your 457 plan and your 401(k) plan, along with the contact information for both plan administrators. The first step is to contact your 401(k) plan administrator to confirm that they accept rollovers from a governmental 457(b) plan, as not all plans are required to accept them.

You must choose between a direct and an indirect rollover. A direct rollover is a trustee-to-trustee transfer where funds are sent from your 457 plan administrator to your 401(k) plan administrator. This method is simpler and avoids tax consequences, as the funds are never paid directly to you.

An indirect rollover involves your 457 plan administrator issuing a check payable to you. You then have 60 days from the date you receive the funds to deposit them into your 401(k) account. If you miss this 60-day deadline, the entire amount is considered a taxable distribution and may be subject to penalties. The 457 plan is also required to withhold 20% for federal income taxes, so you must use personal funds to make up for that withholding to complete a full rollover.

The Rollover Process

The first step is to contact your 401(k) plan administrator to obtain their specific rollover paperwork. Next, you must contact your 457 plan administrator to request their distribution form. On this form, you will specify that you are requesting a rollover and provide the details of the receiving 401(k) plan.

For a direct rollover, you will provide the information for the check to be made payable to the new plan’s trustee. After completing the necessary forms, submit them to the respective administrators. The 457 plan administrator will then process the distribution and send the funds to your 401(k) provider.

The entire process, from submitting the paperwork to the funds appearing in your 401(k) account, can take several weeks. You will receive a confirmation statement from both your old 457 plan and your new 401(k) plan once the transaction is complete.

Post-Rollover Tax Reporting

Early in the year following the rollover, the administrator of your old 457 plan will send you Form 1099-R. This form reports the total amount of the distribution from your 457 plan. For a direct rollover to a 401(k), Box 7 of the form should contain the distribution code ‘G’, which signifies a direct rollover to a qualified plan.

When you file your federal income tax return, you will report the gross distribution amount on the line for pensions and annuities. You will also report a taxable amount of zero and make a “Rollover” notation next to the corresponding line. This clarifies for the IRS that the distribution was not a taxable event.

Your new 401(k) plan administrator will issue Form 5498, which confirms the receipt of the rollover funds. This form is sent to you and the IRS by the end of May for the prior tax year, and Box 2 will show the amount rolled into the account. You do not need to file Form 5498 with your tax return, as it is for your records.