457 to IRA

[FutureInternist]

Reviewed online from multiple sources but wanted to make sure I understand correctly.

I work for a non-profit hospital and have some $$ in my 457.
Am I correct in thinking that I can take $6000 out of 457, put into an IRA (and then convert to Roth IRA), BUT that it can only be done when I switch jobs or retire?
And that this $6000 will NOT count towards my income for the year.
I could not find the answer to my last Q, can I do the same thing for my non-working spouse’s Roth IRA?

Thanks

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[TMP-SMX]

Unlikely that you can move directly from a nongovernmental 457 to IRA. Look at the distribution options in your 457 paperwork, but most likely can only be moved to another nongovernmental 457 or taxed upon distribution.

For governmental 457 it's a different story.

 

[Raryn]

Reviewed online from multiple sources but wanted to make sure I understand correctly.

I work for a non-profit hospital and have some $$ in my 457.
Am I correct in thinking that I can take $6000 out of 457, put into an IRA (and then convert to Roth IRA), BUT that it can only be done when I switch jobs or retire?
And that this $6000 will NOT count towards my income for the year.
I could not find the answer to my last Q, can I do the same thing for my non-working spouse’s Roth IRA?

Thanks

The 457 is pretax money. You may or may not be able to move it to another pretax account depending on the terms of the 457 - if it's through a government (such as a state university) plan, you probably can. If it's private, your mileage may vary. It's very unlikely you can do an in-service rollover though - so it would have to be after you finish your term with that employer.

If you do move it into another pretax account, you very well might be able to do a Roth Conversion. But any Roth conversion of pre tax money will incur taxes, same as if you had an extra $6000 in income. I'm not personally aware of any special rules that make money from a 457 any different than any other source of pre-tax money.

What you can do for yourself or for your spouse is make a non-deductible contribution of *after tax* money to a traditional IRA, then convert it immediately to Roth. This is the "back door" Roth IRA, and can be done no matter what your income limit is. It incurs no taxes, but can only be done if your traditional IRA balance on December 31 of the year you do the conversion is $0. You can contribute $6k for yourself and $6k for your spouse (more if one or both of you is over 50 years old) for a total of $12k.

 

[FutureInternist]

Thanks for the responses.

So if I am maxed out on 403b, 457, HSA, Roth IRA and 529, is there any other avenue to save money other than normal investing in stocks, land etc with post-tax $?

 

[Raryn]

Thanks for the responses.

So if I am maxed out on 403b, 457, HSA, Roth IRA and 529, is there any other avenue to save money other than normal investing in stocks, land etc with post-tax $?

Not that makes any sense, no.

 

[FutureInternist]

Not that makes any sense, no.

If I was unable to max out my Roth IRA then would it make sense to get a distribution from my 457 (I understand I would pay tax on it), in order to contribute to Roth IRA?

I’m thinking that ~$8000 (6k + 30% tax) pre-tax in 457 would be worth less than 6000 post tax in a Roth given the distribution on the Roth would be tax-free.

 

[The Physician Philosopher]

Lots of stuff to untangle here.

A governmental 457 can be rolled into an IRA. A non-governmental 457 cannot. Most non-profit hospitals have non-governmental 457s unless the hospital is a state hospital.

All non-governmental 457's can be accessed, but usually only once you separate from the employer (e.g. retirement, changing jobs, etc). If you take it before hand, there are possibly penalties and you would at least get taxed on this money just like any other additional income. You'd have to ask for the specific 457 plan at your employer to learn the details on this as every 457 is different.

Pre-tax money into a 457 gets taxed when it is taken out. Again, you cannot roll a non-governmental 457 into an IRA. So, the only place you could place this money after filling up a 401K/403B ($19,000 employee contribution), HSA ($7,000 for a family), Roth IRA ($6,000 for you and spouse, even if not working), and 529 is into a taxable/brokerage account if you don't want to use the 457.

One interesting thing about a 457 is that it can be accessed in early retirement (before age 59.5) without getting hit with a 10% penalty. This is unlike a 401K/403B where that 10% penalty will get levied if you access the money before that time point. So, a 457 can often be preferred as an account as long as it meets the criteria that should be met before considering whether to invest in it or not.

457's are a complicated topic. You should ask for the specific plan provided by your employer. I am often amazed at how each one differs.

 

[FutureInternist]

Lots of stuff to untangle here.

A governmental 457 can be rolled into an IRA. A non-governmental 457 cannot. Most non-profit hospitals have non-governmental 457s unless the hospital is a state hospital.

All non-governmental 457's can be accessed, but usually only once you separate from the employer (e.g. retirement, changing jobs, etc). If you take it before hand, there are possibly penalties and you would at least get taxed on this money just like any other additional income. You'd have to ask for the specific 457 plan at your employer to learn the details on this as every 457 is different.

Pre-tax money into a 457 gets taxed when it is taken out. Again, you cannot roll a non-governmental 457 into an IRA. So, the only place you could place this money after filling up a 401K/403B ($19,000 employee contribution), HSA ($7,000 for a family), Roth IRA ($6,000 for you and spouse, even if not working), and 529 is into a taxable/brokerage account if you don't want to use the 457.

One interesting thing about a 457 is that it can be accessed in early retirement (before age 59.5) without getting hit with a 10% penalty. This is unlike a 401K/403B where that 10% penalty will get levied if you access the money before that time point. So, a 457 can often be preferred as an account as long as it meets the criteria that should be met before considering whether to invest in it or not.

457's are a complicated topic. You should ask for the specific plan provided by your employer. I am often amazed at how each one differs.

Thanks for the detailed response.
Time to talk to our retirement folks.