How normal is this for a 457?

[stepitup]

I've had an existing 403b at Fidelity with my company and recently opened a 457 at Fidelity with the same company.

When I opened it, the fidelity representative said that any disbursement after separation of service had to be in one lump sum. I'm still waiting on receiving the official plan documents but wondered if anyone had heard of this before.

I figure worst case I'll just figure out the present value of a future post-retirement year for me and limit myself to that amount. My works offers several different venders I could use for future contributions.

But again, just wondering if this is a normal thing or not?

[ixtap]

457s have restricted options at the best of times. I had not heard of their only being one possibility, but it is within the realm of legality.

[Wintergreen78]

That sounds bizarre - my 457 does not have that restriction.

Are they talking about transfers to an IRA, or about cash withdrawals to serve as income?

It would be completely nonsensical for a retirement account to force you to withdraw everything you’ve saved and invested over your career at once when you retire and begin taking withdrawals to fund your retirement.

[EvenSteven]

I've seen this before, and read articles about non-governmental 457's that warn that this may be the case, so check before contributing.

In my own 457, I have to let the custodian know of my separation and elect a withdrawal option within 90 days, otherwise it is lump summed to me.

[FIREeh?]

This was the case for a non governmental 457 I had in the past. I very reluctantly didn’t contribute for that reason. Most literature you find on 457s is focused on governmental ones though, so it can be difficult to get clarity.

[FLBiker]

Interesting!  I have an governmental 457, and I left my employer about 2 years ago.  I'm able to leave investments in my 457 and pull them out as I want in the future.  I had no idea that this wasn't always the case.

[Gronnie]

That single disbursement could just be an indirect rollover to an IRA.

[stepitup]

Thanks for all the replies. For clarity he said that whenever I took a distribution it had to be the whole thing. It did seem bizarre to me but I know that plan rules can be more restrictive then the federal rules allow. Mostly I went forward because they offer those low cost index funds most of us love.

It sounds like it's possible the plan says that so I'll be sure to get clarification before I put too much in (as I mentioned there are other vendors I could also chose from).

And Gronnie, thanks for pointing that out the rollover option. It could be a good safety valve if it ends up bigger than what I'd want in a single year.

I guess too. I could leave it in this plan and transfer to another 457 at the same company with more flexible distribution rules as I get closer to retirement.

[BicycleB]

Thanks for all the replies. For clarity he said that whenever I took a distribution it had to be the whole thing. It did seem bizarre to me but I know that plan rules can be more restrictive then the federal rules allow. Mostly I went forward because they offer those low cost index funds most of us love.

It sounds like it's possible the plan says that so I'll be sure to get clarification before I put too much in (as I mentioned there are other vendors I could also chose from).

And Gronnie, thanks for pointing that out the rollover option. It could be a good safety valve if it ends up bigger than what I'd want in a single year.

I guess too. I could leave it in this plan and transfer to another 457 at the same company with more flexible distribution rules as I get closer to retirement.

In your shoes, I would:
1) Verify whether the bolded assumption is correct or incorrect
2) Verify wether federal rules ensure that one of your options will be, due to federal law rather than mere plan rules, to "lump sum distribute" into an IRA upon leaving employement
3) Probably conclude that if 2 is true, and especially if 2 is 2 but 1 is not, the key to safety is whether having the funds in an IRA after employment is an option that suits your plans
4) If 3 is true and an IRA suits your plans, figure that my 457 money is on its way to a good account that I can control, even if the 457 itself has limited disbursement options. In that case, I'd pour money into it if the investment order shows it as the best option.

https://forum.mrmoneymustache.com/investor-alley/investment-order/

[hudsoncat]

I know you found your answer to the lump sum, but I will also second double checking your assumptions on being able to roll into another 457b. I had a 457b that required a lump sum distribution. My next job had a 457b without the lump sum distribution requirement (score!) but neither 457b would allow me to roll the original into the new one. So... into the IRA it went (no problems there) and I'm maxing the new 457b from scratch. Regardless, it gave me another tax advantaged account to dump money in and it's no less accessible now than it any other money in an IRA now.

[cool7hand]

Is the lump-sum distribution truly a problem? When you retire, could you take the distribution in the year following retirement to decrease your gross income for taxes? Maybe you just fund the 457 enough to contribute to your first year of FIRE's expected expenses?

[stepitup]

I know you found your answer to the lump sum, but I will also second double checking your assumptions on being able to roll into another 457b. I had a 457b that required a lump sum distribution. My next job had a 457b without the lump sum distribution requirement (score!) but neither 457b would allow me to roll the original into the new one. So... into the IRA it went (no problems there) and I'm maxing the new 457b from scratch. Regardless, it gave me another tax advantaged account to dump money in and it's no less accessible now than it any other money in an IRA now.

Man, I hate how complicated it can be with different plans having different rules. At the point that it gets big enough I'll look into transfer restrictions for sure.

But as you point out, being able to put it in an IRA instead is a good backup plan.

[dandarc]

I know you found your answer to the lump sum, but I will also second double checking your assumptions on being able to roll into another 457b. I had a 457b that required a lump sum distribution. My next job had a 457b without the lump sum distribution requirement (score!) but neither 457b would allow me to roll the original into the new one. So... into the IRA it went (no problems there) and I'm maxing the new 457b from scratch. Regardless, it gave me another tax advantaged account to dump money in and it's no less accessible now than it any other money in an IRA now.

Man, I hate how complicated it can be with different plans having different rules. At the point that it gets big enough I'll look into transfer restrictions for sure.

But as you point out, being able to put it in an IRA instead is a good backup plan.

Just make sure you are eligible to withdraw early (before age 59.5) penalty-free if you roll it over into an IRA. This is the beauty of a 457 for early retirees who can access those funds at any age penalty free once they quit their job unlike with an IRA or 401k (although there are ways around that too).

I'll save the suspense - there's nothing to double check. Once rolled out of the 457b to an IRA, the money loses its penalty-free withdrawal before 59.5 feature.

Do we know if OP has a governmental 457b or a non-governmental? Because the non-governmental plans have some other factors to consider beyond the contribution and withdrawal rules.

ETA: "with my company" in the first post leads me to believe this is likely a non-governmental 457b. But I could just be reading a lot into those few words. The main issue with a non-governmental 457b is that the funds would be subject to a bankruptcy of the sponsoring company - assets are not held in trust the way they are with the 403b or 401k or even a governmental 457b. So there's a bit of additional risk there.

[PDXTabs]

Do we know if OP has a governmental 457b or a non-governmental? Because the non-governmental plans have some other factors to consider beyond the contribution and withdrawal rules.

Yea, I don't have access to a non-governmental 457 but even if I did I might not take advantage of it.

Non-governmental 457 plans must remain unfunded. Plan assets are not held in trust for employees but remain the property of the employer (available to its general creditors in the event of litigation or bankruptcy). Non-governmental 457(b) plans commonly use "rabbi trusts" to hold employee deferrals. The rabbi trust is funded, but the trust assets remain available to creditors. Employees are lower in priority than general creditors in the event of legal claims against the employer. - https://www.irs.gov/retirement-plans/non-governmental-457b-deferred-compensation-plans

[BicycleB]

Do we know if OP has a governmental 457b or a non-governmental? Because the non-governmental plans have some other factors to consider beyond the contribution and withdrawal rules.

Yea, I don't have access to a non-governmental 457 but even if I did I might not take advantage of it.

Non-governmental 457 plans must remain unfunded. Plan assets are not held in trust for employees but remain the property of the employer (available to its general creditors in the event of litigation or bankruptcy). Non-governmental 457(b) plans commonly use "rabbi trusts" to hold employee deferrals. The rabbi trust is funded, but the trust assets remain available to creditors. Employees are lower in priority than general creditors in the event of legal claims against the employer. - https://www.irs.gov/retirement-plans/non-governmental-457b-deferred-compensation-plans

I didn't know that!

Interesting stuff. Good reference, @PDXTabs