Questions About Rolling Employer Plans to IRAs After Quitting

[FIREdancer]

Wondering about the differences between 457 and 403b in terms of leaving my employer well before traditional retirement age.  Can both 457 and 403b be rolled over to IRAs?  I'm unclear about if the 457 can be rolled over or if it has to be distributed upon termination of employment.

Here are my options and what I'm doing:
At my current employer I have a 401a where they plop their matching contributions then I have voluntary 457 and 403b plans.  If I contribute 3% to the 457, they match 3%.

Currently I'm contributing about 18% pretax money to the 457 and just like 1% or 2% to a Roth 403b.  I'm thinking about stopping the Roth 403b and instead contributing pretax to the 403b.  Then I started wondering if should I contribute mostly to the 403b rather than the 457?  In other words, just contribute enough to the 457 for the match and put the rest in the 403b?

If they can both be rolled over to a traditional IRA, I guess it doesn't matter, but that's what I can't seem to figure out.  The plan summary says it allows withdrawals from the 457 after age 70 1/2 or after ending employment without penalty, but I don't know if that means as a distribution where I'd have to pay the taxes or if it could be put in an IRA.

TL;DR
1. Where would you focus contributions over the employer match: 403b or 457?
2. Can both a 403b and 457 rollover to an IRA without penalty after ending employment?

Thanks in advance.

[MDM]

See Rollover Chart - rollover_chart.pdf and the 'Investment Order' tab in the case study spreadsheet.

See also Traditional versus Roth - Bogleheads.

I think those will answer your questions, but if not just reply with what isn't clear. :)

Good luck!

[terran]

Is the 457 a government plan or private?

[FIREdancer]

Is the 457 a government plan or private?

It's a public university...so not really government or private.

[FIREdancer]

See Rollover Chart - rollover_chart.pdf and the 'Investment Order' tab in the case study spreadsheet.

See also Traditional versus Roth - Bogleheads.

I think those will answer your questions, but if not just reply with what isn't clear. :)

Good luck!

Thanks MDM.  I  had found that rollover chart earlier, but I also found something that contradicted it, but this confirms what I thought was correct.

And thanks for the link to the spreadsheet.  I'm already maxing as much as I can in the order recommended, I just wasn't sure of the differences between the 457 and 403b, so that helps.  Thanks!

[seattlecyclone]

The 457 has the unique property that you can withdraw from it prior to age 59½ without paying a 10% early withdrawal penalty. I believe you can roll this money over to an IRA, but the funds would be treated the same as any other IRA money at this point. Might want to leave the 457 money where it is to help with the beginning of your early retirement.

The 403(b) can definitely be rolled over to an IRA, and you probably should do this when you leave your job unless you either:
1) have (or plan to have) a high enough income where you would need to make Roth IRA contributions through the "back door," or
2) the 403(b) has "institutional" class index funds with lower fees than you can get as an individual investor in an IRA.

[terran]

Is the 457 a government plan or private?

It's a public university...so not really government or private.

That should mean it's a governmental plan provided by the state the university is in, which means it CAN be rolled over into an IRA, but I wouldn't since as seattlecyclone points out 457's have the unique feature of allowing withdrawals without penalty after separation from service, but before age 59 1/2. Being a governmental plan also means it's not subject to the seizure by the creditors of the university unlike a private 457.

The only reason you might consider rolling it over is if the plan has fees and/or poor investment choices and you expect to have sufficient assets in the form of roth contributions and/or taxable account funds to get the 5 year traditional to roth conversion pipeline going (meaning 5 years expenses including taxes on the conversions).

[FIREdancer]

The 457 has the unique property that you can withdraw from it prior to age 59½ without paying a 10% early withdrawal penalty. I believe you can roll this money over to an IRA, but the funds would be treated the same as any other IRA money at this point. Might want to leave the 457 money where it is to help with the beginning of your early retirement.

OK, so I can leave the 457 where it is when I leave my job, and then I would be able to withdraw from it anytime and just pay the taxes on what I take out?  As opposed to putting it into a traditional IRA and having to do roth conversions or 72t before 59 1/2?

Thanks, seattlecyclone.  I guess I thought it had to either roll over or be distributed.  I didn't even consider leaving it put.  Duh.  And my plan has Vanguard Total Stock Market, so that would be great.

[FIREdancer]

Is the 457 a government plan or private?

It's a public university...so not really government or private.

That should mean it's a governmental plan provided by the state the university is in, which means it CAN be rolled over into an IRA, but I wouldn't since as seattlecyclone points out 457's have the unique feature of allowing withdrawals without penalty after separation from service, but before age 59 1/2. Being a governmental plan also means it's not subject to the seizure by the creditors of the university unlike a private 457.

The only reason you might consider rolling it over is if the plan has fees and/or poor investment choices and you expect to have sufficient assets in the form of roth contributions and/or taxable account funds to get the 5 year traditional to roth conversion pipeline going (meaning 5 years expenses including taxes on the conversions).

Thanks, terran.  This is very helpful!

[seattlecyclone]

The 457 has the unique property that you can withdraw from it prior to age 59½ without paying a 10% early withdrawal penalty. I believe you can roll this money over to an IRA, but the funds would be treated the same as any other IRA money at this point. Might want to leave the 457 money where it is to help with the beginning of your early retirement.

OK, so I can leave the 457 where it is when I leave my job, and then I would be able to withdraw from it anytime and just pay the taxes on what I take out?  As opposed to putting it into a traditional IRA and having to do roth conversions or 72t before 59 1/2?

Thanks, seattlecyclone.  I guess I thought it had to either roll over or be distributed.  I didn't even consider leaving it put.  Duh.  And my plan has Vanguard Total Stock Market, so that would be great.

Look into your specific employer's plan documentation. It's possible that your employer set up their plan rules so that you can't take partial distributions after you leave. If you can take partial distributions, there's no early withdrawal penalty.

[FIREdancer]

Look into your specific employer's plan documentation. It's possible that your employer set up their plan rules so that you can't take partial distributions after you leave. If you can take partial distributions, there's no early withdrawal penalty.

It sounds like I can take partial distributions.  The documentation says that after leaving I can choose the date of the distributions and can elect to defer distributions subject to minimum required distribution rules (beginning whichever is later: turning 70 1/2 or leaving the job).  But I will call them to confirm.

Thanks, again for helping me understand how it all works!