457b Conversion Question for pre 59.5 years old

[Rollin]

I’d like to run the information that I found past you all. I find that the feedback that I get here surpasses the information I receive from various professionals I have contacted. I continue to research these things until I am very comfortable though. As you know, many times once you make a move, or don’t make a move, the IRS rules can lock you in.

-   Planning on FIREing August 1, 2016
-   Have a 457b (local government tax deferred retirement account) with International City Managers Association (or ICMA).
-   I initially wanted to move the funds in that 457b to a better entity (i.e., Vanguard) to have better investment choices and lower fees, but the problem seems to be that I have two options that are both not optimal.
-   First, move it to a traditional IRA – that preserves the tax deferred benefits, but if I start to withdraw before 59.5 I not only pay taxes on the withdrawals (small withdrawals, but I expected to pay taxes), but a 10% penalty on top of the taxes.
-   Second, move it to a Roth I’m required to pay taxes right up front on the entire transfer, but no taxes upon withdrawal.
-   Would any of you have a different path to suggest (rather than keeping it with ICMA)?

Again, I can withdraw at age 55 and pay normal taxes, but I am just trying to get these funds into a better investment vehicle – without penalty.

[rubybeth]

Nope, it's my understanding that with a 457b, you must leave it in the 457b to keep the tax advantages. I would check with the actual plan holders to confirm. I would NOT move to to an IRA of any kind. That's the whole advantage of the 457b. Maybe AFTER age 59.5, you could roll the balance into a Roth for different investment choices, but I think you may have more luck just asking/demanding investment options that you want to see within the 457b plan.

[Rollin]

Nope, it's my understanding that with a 457b, you must leave it in the 457b to keep the tax advantages. I would check with the actual plan holders to confirm. I would NOT move to to an IRA of any kind. That's the whole advantage of the 457b. Maybe AFTER age 59.5, you could roll the balance into a Roth for different investment choices, but I think you may have more luck just asking/demanding investment options that you want to see within the 457b plan.

Thanks Rubybeth. I thought that might be an option at 59.5 and will consider that.

[KCM5]

I don't know what your timeline is, but can you move a portion of it? With my 457 you can.

Leave enough in your 457 to get you through to 59.5 then withdraw from the traditional IRA. Or leave enough to get you through 5 years in the 457 and then withdraw from the Roth. I think if you're 50 I'd go with the first option, though. Unless you have a pension as well?

[Rollin]

I don't know what your timeline is, but can you move a portion of it? With my 457 you can.

Leave enough in your 457 to get you through to 59.5 then withdraw from the traditional IRA. Or leave enough to get you through 5 years in the 457 and then withdraw from the Roth. I think if you're 50 I'd go with the first option, though. Unless you have a pension as well?

I thought of that too, just pull out my 4% SWR for the year.

It is only one piece of the income puzzle (1 of 10 pieces), so it is not imperative that it go perfectly. I just want to optimize every aspect of this FIRE move.  BTW - my DW always states that she want multiple sources of income, so (almost) every time she says that I count the pieces of our puzzle (11 now). However, I think she means multiple sources that offer more than we have : (

[KCM5]

I don't know what your timeline is, but can you move a portion of it? With my 457 you can.

Leave enough in your 457 to get you through to 59.5 then withdraw from the traditional IRA. Or leave enough to get you through 5 years in the 457 and then withdraw from the Roth. I think if you're 50 I'd go with the first option, though. Unless you have a pension as well?

I thought of that too, just pull out my 4% SWR for the year.

It is only one piece of the income puzzle (1 of 10 pieces), so it is not imperative that it go perfectly. I just want to optimize every aspect of this FIRE move.  BTW - my DW always states that she want multiple sources of income, so (almost) every time she says that I count the pieces of our puzzle (11 now). However, I think she means multiple sources that offer more than we have : (

Maybe this is what you're saying, but I think I should clarify what I meant.

Let's say you spend $30000/yr and have 6 years until you're 59.5. Move all of the money except $180000 (30000*6) into the IRA. Then pull $30k/yr from the 457. Once 59.5 you'll have depleted the 457 and can pull from the IRA.

Regarding the Roth vs traditional, take a look at the marginal tax rate that you'll be paying on your pretax money. If you have a pension, that may put you in the 15% tax bracket already, so paying 15% on your money to put it into the Roth (do rollovers over the course of your early retirement) would be a wash. Of course, you know that that rollover money is available to you after 5 years (contribution only, not gains) regardless of how old you are.

[Rollin]

KCM5 thanks for that. I see a different timing that I did not think of in what you offered. That would get me to Vanguard with money that I can wait for (at 59.5+).