Which 457b withdrawal option should be chosen?

[LibrarIan]

My wife (32 years old) and I had a baby and she resigned from her job. We are rolling her 457b into a tIRA. Her 457b financial institution gave us a form and one section asks us to choose from the following options

- Distribution Due to Termination/Retirement If you have retired due to disability you must provide your disability approval letter from your respective Kentucky State Retirement System.
- In-Service Distribution 457(b) De Minimus (currently working for a Participating Employer*and balance < $5,000 and no 457(b) Deferrals for at least 2 years).
- In-Service Distribution (currently working for a Participating Employer*AND age 70.5 or older) * An employer whose employees are eligible to make deferrals into the Plan.
- Distribution due to Alternate Payee status (if checked must choose Total Distribution or Total Rollover).

I want to be sure we pick the correct one. My gut says to go with option 4 since we desire a total rollover. I know options 2 and 3 aren't right. What about 1? She wasn't terminated in the sense she was fired, but her employment has been terminated in a way.

[erutio]

First, do you have to roll it over?  If the investment options are good in the 457 are good, she should keep the money there.   457s are a lot more flexible for withdrawing than an IRA.

The reasons for rolling it over include the fees are too high, the investment options suck, or you won't need to access this money until age 59.5.  You could do a roth pipeline for the IRA, but that takes a 5 year rolling waiting period. 

Secondly, it seems the first choice most accurately describes your wife's situation.

[terran]

I would agree that you might want to reconsider rolling over unless the investment options or fees are terrible as governmental 457(b) plans are great for early retirement since you can withdraw at any time without paying a penalty (unlike an IRA) though you will still pay tax (like an IRA). Since your wife terminated her employment option 1 is correct. Termination goes both ways.

[LibrarIan]

Yes, rolling over makes the most sense. The fees are very high. She will not be returning to work for a long time and, even when/if she does, there is no guarantee it'll be to a place that does a 457. Better to move this into something like a tIRA and be able to actively contribute and control the investments at a low cost rather than have it sit and get hammered with fees.

[bacchi]

Wait. A trustee-to-trustee rollover is usually initiated by the receiving institution. I.e., Vanguard would reach out to the 457b admin and get the funds directly. It looks like the 457b admin thinks you're doing a distribution where your wife is going to withdraw the money and make it taxable income.

You want this: https://investor.vanguard.com/401k-rollover/401k-to-ira-rollover-rules

You can roll over almost any type of employer-sponsored retirement plan, such as a 401(k), 403(b), or 457 into a Vanguard IRA.

Start with Vanguard (or Fido or whomever but don't turn in that form to Big Fees 457b Administrator).

[LibrarIan]

Wait. A trustee-to-trustee rollover is usually initiated by the receiving institution. I.e., Vanguard would reach out to the 457b admin and get the funds directly. It looks like the 457b admin thinks you're doing a distribution where your wife is going to withdraw the money and make it taxable income.

You want this: https://investor.vanguard.com/401k-rollover/401k-to-ira-rollover-rules

You can roll over almost any type of employer-sponsored retirement plan, such as a 401(k), 403(b), or 457 into a Vanguard IRA.

Start with Vanguard (or Fido or whomever but don't turn in that form to Big Fees 457b Administrator).

Yes, we did this. Vanguard started the process. Then we got a follow-up from the 457 crew to fill out this form. In the form, you can specify a total rollover, or you can actually take a distribution (but we're not doing that). I don't think they're very organized - we called a while back and the person on the phone at first didn't even think her department handled this sort of request, then she called us back a few minutes later to tell us they needed a letter, which vanguard provided. Apparently she didn't realize they also need this special form completed. In case anyone is wondering, this is a Kentucky Deferred Compensation plan managed by Nationwide.