Just Left Government or Non-Profit Work? Here Is How a 457(b) Differs From an IRA
457(b) plans can follow different distribution rules than IRAs. How those rules apply after you leave your employer, and how a Roth conversion would be taxed, depends on your plan and your situation.
How a 457(b) Differs From an IRA After Separation
Distribution Rules Can Differ After Separation
Distributions from a 457(b) after you separate from service may be treated differently than distributions from an IRA. Rolling the funds into a traditional IRA can change which rules apply, so the rollover decision is worth understanding before you act.
The Rollover Decision Has Consequences
Rolling a 457(b) into a traditional IRA can change which distribution rules apply to the money. Converting to a Roth means ordinary income tax is owed on the converted amount. Both choices can be hard to reverse, so it helps to review your options with a qualified tax professional.
Income Can Change After Separation
Your income may be lower in the years after you leave your employer, which can change the tax rate that would apply to a conversion. Whether a conversion makes sense depends on your other income, including Social Security and required minimum distributions later.
What to Understand About a 457(b) Roth Conversion
Topics worth understanding when you compare a 457(b) with an IRA.
Tax Bracket Considerations
The tax bracket you are in when you convert affects how much tax the conversion costs. Comparing a lower-income year with years when Social Security and required minimum distributions add income is a common part of conversion planning.
IRMAA and Required Minimum Distributions
Roth conversions change the size of a traditional account, which can affect later required minimum distributions and, in turn, Medicare premium surcharges (IRMAA). The effect depends on your income and the rules in effect.
Legacy Math Under SECURE Act
The SECURE Act set a distribution timeline for many inherited IRAs, and qualified distributions from an inherited Roth IRA are generally not taxed if IRS rules are met.
Common 457(b) Questions
Do I have to roll my 457(b) over right after I separate?
No. You can leave funds in the plan, roll them to a traditional or Roth IRA, or roll into a new employer's plan. Each option has tradeoffs worth reviewing with a qualified tax professional.
Can I convert directly from a 457(b) to a Roth IRA?
Governmental 457(b) plans generally permit direct Roth conversions. Non-governmental 457(b) rules differ, so check the specific provisions of your plan with your plan administrator or a qualified tax professional.
Is this advice or a sales pitch?
Neither. The qualification form takes 2 minutes. If you qualify, we'll review your specific situation. There is no obligation to schedule a call after, and the analysis itself is free for qualifying participants.
What does the analysis cost?
Free for qualifying participants. Clients who choose to work with us after the analysis may pay flat fees, asset-based fees, or commissions on insurance and annuity products, depending on the strategy.
Ready to See Your Specific Numbers?
The qualification form takes 2 minutes. If you qualify, we'll review your specific 457(b) situation and send a written analysis. No obligation to schedule after.