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max457

Upon Retirement Can Distribution Be Spread Over 3 Years

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I understand that it is no longer mandatory to take 100% of ones 457 savings at retirement. How long can the withdrawal be spread over? Is it 2 or 3 years? Can withdrawals be made monthly or only annually?

Are funds remaining in the 457 account tax free until they are withdrawn? Thanks for your informed reply.

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Guest adirondacks

You may make withdrawals at any time and for any amount so long as you have severed employment. At age 70-1/2 you must begin taking your Required Minimum Distributions (RMD). Your RMD must be taken in increments of at least once per year. If you so choose, this annual amount may be broken up and taken on a monthly or quarterly basis. All this good stuff information is available from your Plan Administrator.

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1. How long can the withdrawal be spread over? Is it 2 or 3 years? Can withdrawals be made monthly or only annually?

 

It depends on the terms of your plan's written document. Its provisions will dictate the options you have available.

 

2. Are funds remaining in the 457 account tax free until they are withdrawn?

 

Tax-deferred, yes. Tax-deferred means the earnings are not taxed as long as the funds stay in a tax-favored plan, like a 457(b) plan, or as long as they are rolled to an IRA (the payment of taxes is thus "deferred" to a later date). Once distributed, taxes apply.

 

"Tax-free" only applies to withdrawals from designated Roth accounts that meet certain criteria to be considered as a tax-free withdrawal. Tax-free means no taxes apply to the earnings while the funds are in the plan and no taxes apply even when paid out! That's quite a difference between tax-free and tax-deferred! Of course with Roth, your Roth deferrals and/or your Roth conversions are taxed at the time, so you've paid taxes on these contributions.

 

If you have Roth in the 457(b) plan and you are going to reach age 70.5 next year and if you are eligible to withdraw your Roth account from the plan, you may want to consider rolling your Roth account to an IRA in order to avoid RMDs from the 457(b) plan (required minimum distributions). Under current rules, there is no RMD for a Roth IRA until after the death of the IRA owner.

 

State rules can differ on how deferrals are treated, so all of the above is really just covering the Federal rules. You may want to speak with a tax advisor to help you with your specific situation.

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