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457B To Roth Or Designated Roth

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I transferred the assets from a previous job's 457b to my current job's 457b with the assurance of my 457b plan adviser that it could be rolled over within the current 457b to a Roth IRA. Now he indicates I can't. We have been withholding federal and state taxes to cover the Roth conversion all year.

 

I can defer to a designated Roth from my salary to the end of the year, but that won't be nearly enough to cover the witholdings. We've withheld far more now than we need even with future designated Roth deferral.

 

Do I have any options other than stop withholding?

 

Thanks

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First, for the old plan to be distributing a rollover and for the current plan to be accepting a rollover, these plans must both be government sponsored 457(b) plans. If that's not the case, please let me know - and ignore the rest of the comments in this reply.

 

The plan document for the current 457(b) plan may have language that permits the distribution of rollover contributions. Check the rollover contribution section and check the distribution section. If the document allows for this, then you should be able to make a request to have your rollover funds distributed, or preferrably directly rolled into a Roth IRA. This distribution option does not apply to "transfers", since they are not rollovers (a transfer is basically where one employer enters into an agreement with another employer to transfer 457(b) accounts).

 

Otherwise, if the plan document does not allow early distributions for rollover accounts, then your funds cannot be withdrawn from the plan unless you A) end your employment, B) die, or C) reach age 70.5. - The code and regs do not allow for the types of in-service distributions commonly seen in 401(k), 403(b), profit sharing plans, etc.

 

Earlier payments can occur from a 457(b) plan but only for certain exceptions, in general: a de minimis option exists for a small account, unforeeable emergency withdrawals can be allowed, a QDRO (if the plan allows), and if the plan itself terminates.

 

If the new "in-plan Roth rollover" rules are considered, you really get no additional help there either. First, the plan would have to have adopted this option, but the provisions are only available if you are eligible for a distribution anyway (death, age 70.5 or terminated).

 

Lastly, I have never heard of an IRA being "within" a 457(b) plan, so I don't know what the advisor was indicating there.

 

If your current plan allows Roth, you can defer the rest of year as Roth. Just make sure your Roth and non-Roth deferral contributions when combined from both employers for the year plus any employer 457(b) contributions to your account (from both employers) are not over the annual 457(b) limit. Yes, it's an individual limit, so both plans' contributions to your account must be added together and tested against the annual 457(b) limit.

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Thanks John for the exceptionally fast and clear response.

 

Here are points of clarification:

 

1. Both are governmental 457(b)'s

2. The 457 sponsor cites IRS rules in denying the rollover

3. The 457 sponsor cannot find a copy of the plan

4. With regard to you last statement, he based his advice on something that was not allowed, which he has done since.

 

My goal was to achieve some sort of balance between our taxable and tax-exempt accounts, and to make them more liquid. I clearly negated both those possibilities with the transfer, ouch!

 

Moral: Before making a major financial decision based on someone's advice, get a second opinion.

 

I am within 3 years of retirement, and I understand IRS rules allows double the standard $16.5k, or $33k. I do meet prior years deferral provisions.

 

I just applied to increase my deferral to the $33k level, which will help a bit, but am not optimistic that it will be allowed.

 

Thanks again John

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