As it pertains to retirement planning, the options can often seem endless. Two popular savings accounts include 457 plans and Roth IRAs - often people wonder whether transferring their 457 to Roth is viable and this article explores this idea more in-depth.
A 457 plan is a non-qualified, tax-advantaged deferred compensation retirement plan available for government employees and some non-government organizations. Contributions made before taxes are applied grow tax deferred until being withdrawn later from your plan.
A Roth IRA, on the other hand, is an individual retirement account which permits tax-free withdrawals of qualified withdrawals made during retirement. Contributions made into such accounts use after-tax dollars versus 457 funds as their funding source.
In general, yes. Funds from a 457 plan may be transferred directly into a Roth IRA through what's known as "rollover", but as with all financial decisions there may be specifics and implications which must be carefully taken into consideration prior to proceeding with any transfer process.
One of the primary considerations when moving funds from a 457 plan into a Roth IRA is tax implications. Because Roth IRAs are funded with post-tax dollars, you must pay taxes on pre-tax amounts being transferred over from your 457 plan into it; any such amounts would add to your income for that year and could push you into higher tax brackets.
Timing your rollover correctly is of utmost importance. If you anticipate dropping into a lower tax bracket soon, waiting might make sense; conversely if higher tax rates loom large down the road it might make more sense to complete it sooner rather than later.
Roth IRA rollovers do not count towards your annual contribution limit; however, make sure to be aware of any penalties or restrictions related to 457 plans before initiating a rollover.
Switching from a 457 plan to a Roth IRA may provide additional investment choices and diversification benefits, with most Roth IRAs boasting greater investment choices compared to 457 plans.
Transferring funds from a 457 plan into a Roth IRA may be possible, but before making your final decision it's essential that you consider all potential tax repercussions and other important aspects. Consulting a financial advisor could offer invaluable insight and assist with helping to assess if such a move fits with your retirement goals and financial status.