Author Topic: Question about 457b and rollover to IRA  (Read 166 times)

Silrossi46

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Question about 457b and rollover to IRA
« on: February 07, 2021, 10:52:23 AM »
So I have a Government 457b which would allow penalty free withdrawal at time of separation regardless of age.  I am currently 50 and can go anytime between now and 55.  (Latest would be 55). I do have a pension at time of separation that starts immediately that would cover all living expenses so donít need to tap any of the 457b funds right away. my pension although substantial is not cola adjusted so my staches for me act as that part of my equation.  They are essentially my hedge against inflation and whatever else my needs may be.  (Healthcare provided in retirement premium free).

The 457b has funds with much higher fees than vanguard per say.  Ie example vtsax .04 versus .65 for sp500 fund in nationwide. 

My question is if you rollover the 457b upon separation to a rollover ira in vanguard are you then bound by the 59.5 age rule that governs the ira ?   Also the 457b has a fixed account that currently sits at 3.5% with very minimal fees. Wondering if anyone had any thoughts on that being an option if upon Separation maximizing returns was not so much a need? 

My thought is to roll it over to vanguard and do an 80/20 in the rollover of vtsax and vbtlx and possibly other choices that are not available in nationwide. 

Current picture

457b = 580,000
Vanguard after tax = 275,000 vtsax
Vanguard roth = 25,000 vtsax
Savings account  = 100,000
Home= single family home no mortgage own outright. 600k value

I have just provided some other info to help hear what folks have to say about the 457b and my thoughts for a rollover. This in my mind would also simplify finances by having all funds at vanguard upon separation from employment. 

Thanks in advance for any replies.


Wintergreen78

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Re: Question about 457b and rollover to IRA
« Reply #1 on: February 07, 2021, 11:30:06 AM »
Iím in an almost identical example to you. My 457 plan charges 1% for the sp500 index. My fixed interest option returns 3.5% (dropping to 3% in 2022.

For now Iím choosing to keep those funds in the 457 plan to keep the flexibility. If you roll them into an IRA you canít withdraw early without paying a penalty. You could roll a portion into an IRA, then convert that immediately into a Roth IRA. Then you could access the Roth funds after 5 years without penalty. Of course, the Roth conversion creates a tax obligation, so you have to look at your current tax rate.

In my case I value the flexibility, and I think the tax impact of the Roth conversion would outweigh the savings on the plan fees. But, I made that decision looking at my overall situation and other assets.

Another option would be to only keep your fixed rate funds in the 457 and move all your index funds to an IRA. The fixed rate funds could then be withdrawn at any time without a penalty, if you end up needing them in an emergency. Depending on your other assets that could be a reasonable approach.

Edit: I use the fixed interest portion as my ďsafeĒ portion of my investments. So I keep 20% of my total investments in that, and the rest in stock index funds. Once the rate drops next year Iíll reevaluate whether it makes sense to shift some of that to bond funds.
« Last Edit: February 07, 2021, 11:33:19 AM by Wintergreen78 »

Silrossi46

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Re: Question about 457b and rollover to IRA
« Reply #2 on: February 07, 2021, 11:43:20 AM »
Thank you for the reply.  That offers some new insight to think about.  I currently do not have any at all  in the fixed account.  If I stay till 55 I have the ability to contribute double catch-up for three years 52,53,54 so that will Increase my balances hopefully if all goes well. 

I like the idea of rolling a large portion and maybe leaving 100k or so in the 457b for that flexibility you speak of.  I also have the taxable account as well so funds will be available for emergencies.   

A lot to think about.