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457 Plan Rollover

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I have $40K in a 457 Plan with a city. I no longer work for the city and would like to take $10K out of the plan and roll the remaining $30K into my IRA. Would I pay taxes on only the $10K withdrawl? If the proceeds are sent to me, how long do I have to put the remaining $30K into my IRA?

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Guest Sierra

I have $40K in a 457 Plan with a city. I no longer work for the city and would like to take $10K out of the plan and roll the remaining $30K into my IRA. Would I pay taxes on only the $10K withdrawl? If the proceeds are sent to me, how long do I have to put the remaining $30K into my IRA?

 

 

The funds that are not rolled over will be subject to income tax at ordinary rates. The 10 percent federal excise tax does not apply. I would only effectuate a rollover to an IRA, which must be done within 60 days of your receipt of the check, provided you do not have a no-load Plan, adequate fund selection and service. Too many rollover their funds because they believe it is the thing to do especially when some professional distributor finds his or her way to the kitchen table and exhibits a gift for gab!

 

Of Note: If you receive the rollover amount, 20 percent must be withheld for your potential income tax liability. This means the check will be for 80 percent of $30,000 or $24,000. This will be fine if $24,000 is the amount you wish to rollover over. If, however, you wish to rollover over the $30,000 you will have to come up with the additional $6000 from some other source. A far superior way to accomplish a rollover is to use the direct rollover method. With this method the payer sends the $30,000 check directly to your IRA Custodian.

 

Joel L. Frank

 

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FYI regarding the 10% excise tax:

 

1. Joel is correct, if you're under 59.5 and you take the distribution from the 457 plan as taxable to you, then no 10% excise tax applies, just the regular income taxes (state, federal, local, etc). It's a 457 plan withdrawal.

 

2. Watch out: If you are now under age 59.5 AND if you roll your distribution money into an IRA, but then something comes up and you need that money before the year you reach age 59.5 -- well bummer, but the 10% penalty DOES apply to this IRA withdrawal!

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