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Rollover IRA funds into governmental 457B vs solo 401K?

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  • Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    I’ve asked a related question before, but since then I’ve sorted more things out and so my question is now more simplified.

    Basically I have a 457B for my County employment (governmental, with Fidelity) and a soloK that I just opened with Fidelity (to put money from the little bit of 1099 work I do on the side).  457B accepts rollovers (and can roll back out again if I want), and also has some negotiated low cost funds that the other Fidelity accounts don’t have (e.g. VINIX with 0.035% ER, Vanguard TDFs, not available in other Fidelity accounts).

    Any reason FOR rolling into 401K (or against rolling into 457B) instead?

    If it matters, this would be my fastest growing pot of growth (also have Roth and taxable with Fidelity, HSA with OptumBank).

     

    Thanks!

    #197952 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1709
    Joined: 02/01/2016

    Doing rollovers to a one-participant 401k will increase the plan balance. When the plan balance is > $250K on 12/31 you must file Form 5500-EZ. It is not exceptionally difficult, but late/failure to file is subject to significant penalties.

    After a separation a 457b can take distributions at any age subject to income taxes but without a 10% early withdrawal. This gives you a lot of flexibility.

    Neither one is subject to ERISA Title I, so there is no federal asset protection difference. They both have unlimited federal bankruptcy protection. Neither will have federal creditor protection, it will be at the state level. I don’t have any specific knowledge state to state, but since they cover government employees (think unions), they are more likely to have bettor state creditor protection.

    I vote for the 457b.

    #197965 Reply
    The Physician Philosopher The Physician Philosopher 
    Moderator
    Status: Physician
    Posts: 102
    Joined: 12/28/2017

    You can also access the 457 in early retirement without getting hit by the 10% penalty (unlike a 401k where this will occur if withdrawn before age 59.5).

    I’d favor the 457, too, since it is governmental.

    Owner of thephysicianphilosopher.com website: helping medical professionals obtain wealth and wellness.

    #197973 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    Thanks, all good points that I hadn’t realized or thought of! 🙂

    #198043 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3618
    Joined: 01/08/2016
    457B accepts rollovers (and can roll back out again if I want),

    Click to expand…

    really? is that a thing @spirit?

    Any reason FOR rolling into 401K (or against rolling into 457B) instead?

    Click to expand…

    what are the distribution options? do you have to take it over X number of years?

     

    probably the 457.

     

    but honestly i feel like this is splitting hairs.

    #198063 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1709
    Joined: 02/01/2016

    Under IRS regulations rollover contributions are always fully distributable and eligible for in-service withdrawals/rollovers. I don’t know if they are required by the plan or optional, but even plans I have seen that don’t allow any other in-service withdrawals/rollovers prior to age 59 1/2 allow rollover contributions at anytime.

    Good point about distribution options. If the 457b plan only allows lump sum distributions, it reduces the value of the anytime after separation distribution.

    It probably is splitting hairs, but I would still lean towards the 457b. The OP could always rollover to the one-participant 401k later.

    #198124 Reply
    Liked by Peds
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    Under IRS regulations rollover contributions are always fully distributable and eligible for in-service withdrawals/rollovers. I don’t know if they are required by the plan or optional, but even plans I have seen that don’t allow any other in-service withdrawals/rollovers prior to age 59 1/2 allow rollover contributions at anytime.

    Good point about distribution options. If the 457b plan only allows lump sum distributions, it reduces the value of the anytime after separation distribution.

    It probably is splitting hairs, but I would still lean towards the 457b. The OP could always rollover to the one-participant 401k later.

    Click to expand…

    I didn’t really understand about the distribution options questions (re: lump sum).  I would not expect to be taking distributions until retirement (likely 65), and then spread over time — isn’t that standard for retirement plans?

    #198135 Reply
    Avatar spiritrider 
    Participant
    Status: Small Business Owner
    Posts: 1709
    Joined: 02/01/2016

    I didn’t really understand about the distribution options questions (re: lump sum).  I would not expect to be taking distributions until retirement (likely 65), and then spread over time — isn’t that standard for retirement plans?

    Click to expand…

    Not necessarily. IRS regulations only require a lump sum distribution/rollover. That is all some plans offer, they don’t want to be in the distribution business. Others have more additional options; annuitization, other periodic payments including RMDs, with elective partial withdrawals being less common. The TSP will only be offering that last option starting 9/15/19.

    Anecdotal evidence is that 457b plans tend to have more restrictive distribution options than other types pf plans.

    #198140 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3618
    Joined: 01/08/2016
    I didn’t really understand about the distribution options questions

    Click to expand…

    you need to get the plan documents for your 457.

    it will tell you how it will be paid out. some force a lump sum, some say you can take it over 10 years, some dont care.

     

    #198168 Reply
    Avatar Snag75 
    Participant
    Status: Physician
    Posts: 179
    Joined: 12/09/2018

    you need to get the plan documents for your 457.

    it will tell you how it will be paid out. some force a lump sum, some say you can take it over 10 years, some dont care.

    Click to expand…

    Remember, this is a *governmental* 457B.

    https://www.irs.gov/retirement-plans/comparison-of-tax-exempt-457b-plans-and-governmental-457b-plans

    #198173 Reply
    Avatar treesrock 
    Participant
    Status: Physician
    Posts: 280
    Joined: 08/14/2017

    you need to get the plan documents for your 457.

    it will tell you how it will be paid out. some force a lump sum, some say you can take it over 10 years, some dont care.

    Click to expand…

    Remember, this is a *governmental* 457B.

    https://www.irs.gov/retirement-plans/comparison-of-tax-exempt-457b-plans-and-governmental-457b-plans

    Click to expand…

    You still need to look up distribution options, but they will likely be favorable.  For example this is Virginia’s 457b distribution options.

    https://www.varetirement.org/dcp/plan-info/leaving-employment.html

    #198185 Reply

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