roll the 457 to an IRA??

Submitted by Thomas Bittner on Sat, 2009-08-22 20:14

I read Ed’s book on stretching IRA’s and am convinced I did the right thing when my mom passed away.
Now my wife and her brother may be close to a similar situation.
My wife’s mother is a recently retired state worker from NJ. She is currently fighting (and winning) a battle with cancer. She has a pension as well as a 457 plan which is the state worker equivalent to a company 401(K). However, I researched and found out that when she passes, my wife and her Bro [u]HAVE[/u] to take a lump sum and are [u]not[/u] eligible to rollover to Bene IRA, as I did.
After reading Ed’s book, I am trying desperately to explain to them what I’ve learned. My wife’s concern is that if her mom rolls entire 457 plan into a TIRA, she (her mom) will not be able to “take out” and spend(enjoy) any amount she wants. She thinks she will be limited to Required distribution.
Her mom is currently 64 years old. I am under the assumption, that if her mom rolls the 457 into a TIRA , she can take [i]any[/i] amount at [i]any[/i] time (taxable of course) AND when she passes, my wife and her Bro can roll the split balance into their own Beneficiary IRAs and not get blasted into a higher tax bracket as well as enabling them to “stretch” the IRA.
Am I missing anything?
My only hurdle is to convince them to do this all the while maintaning the position of having no personal interest in “their” money.
I did all the math. Basically, it would keep about $5K from unnecessarily going to Uncle Sam.
Your thoughts, please.



Submitted by mk foss on Sat, 2009-08-22 20:38

The Required Minimum Distributions are just that – minimums. If someone does not withdraw the minimum they’re subject to a 50% penalty.

There are no maximums – you can take out 100% of the balance from an IRA if you want. Everything that is withdrawn is taxable – that’s why there are minimums to get that deferred money back into the tax system. There is no reason to have a maximum.



Submitted by Alan Spross on Sat, 2009-08-22 21:26

In addition, what you found out in your research will be outdated as of 1/1/2010. Note that all govt. 457b plans MUST offer a direct transfer to a non spouse inherited IRA in the first plan year starting after 12/31/09. This was included in WRERA signed into law last December. Prior to this, the transfer was optional. The following is copied from the technical explanation of the bill:
>>>>>>>>>>>>>>.
Allow rollovers by nonspouse beneficiaries of certain retirement plan distributions (Act sec.
829 and Code sec. 402(c)(11), (f)(2)(A))
The Act permits rollovers of benefits of nonspouse beneficiaries from qualified plans and
similar arrangements. The provision clarifies that the current law treatment with respect to a
trustee-to-trustee transfer from an inherited IRA to another inherited IRA continues to apply.
Under the provision, effective for plan years beginning after December 31, 2009, rollovers by
nonspouse beneficiaries are generally subject to the same rules as other eligible rollovers.
>>>>>>>>>>>>>>

A govt 457b plan is included in the types of retirement plans affected above. In addition, there is another option you should be aware of. While you cannot convert an inherited IRA to an inherited Roth IRA, you CAN convert a non spouse inherited qualified plan to an inherited Roth IRA. This is confirned in IRS Notice 2008-30. Therefore, the 457b plan provides funding for a Roth conversion that is lost once the plan is transferred to a TIRA account by your mother in law or to an inherited TIRA account by a beneficiary. Keep those options in mind.

On balance, it may still be advisable to have her transfer the plan now to a TIRA, but be aware of these factors before you make the final decision.



Submitted by Thomas Coyle on Mon, 2015-01-12 18:05

My cousin has a 457 with a Maryland Police Institution. He recently retired, he is married. He was born in 1952 and his spouse was born in 1956. Currently, they are in there first year of retirement and have no income concerns. He has an option to annuitize the 457 with the current institution and I am not sure if that is a good idea. There is also a son, approximate age is 30 and he is not married.We have Non Qualified Accounts set up at The American Funds and 2 other NQ Accounts with Allianz(EIA’s) which are limited and I have always advocated taking income from Allianz Frist. They have not exercised Social Security Options as well and there is a sizeable IRA with Jackson National Life. There is no LTC. I have advocated doing some Generation Skipping designs though the question now would be the 457. What do you think should be the course as I would think that the 457 has lilitations?Thank you,Thomas Coyle 



Submitted by Alan - IRA critic on Mon, 2015-01-12 18:26

The govt 457 can either be rolled over to an IRA or Roth IRA, or he could annuitize. A life or joint life annuity payout would be considered RMDs and could not be rolled over. SS will also be a life annuity with a COLA. It is not possible to detemine what is best for the 457 between the rollover vs the annuity, but he no longer needs to maintain it as a souce of penalty free distributions because he is now over 59.5. The LTC market has been dysfunctional for quite a while now so he may be better served to consider the IRA rollover where he can access whatever funds are needed when he needs them for LTC or other reasons. Since LTC is typically very expensive and deductible, the IRA distribution taxes would be offset by deductions to the extent of LTC expenses. That is one case for the IRA rollover. He would probably be well served to equalize his taxable income before and after SS benefits begin, so that higher taxes can be avoided after all the benefits are being collected. If he does not need the money but wants to apply the lower brackets now, he should consider converting to Roth some incremental amounts designed to stay in his current bracket. That will reduce RMDs in the future that could result in a higher bracket, surcharged Medicare premiums etc. It is very complex to put together the optimal model for this due to all the inter related factors.



Submitted by Thomas Coyle on Tue, 2015-01-13 00:50

I am grateful for your expedient response and for the thoroughness of your answer. If we had to plan for more income the NQ Mutual Fund Account could be accessed followed by the Allianz Annuity(substantial in size) which is underperforming versus the other Securities and Savings Programs. And then there is Social Security.  Leading me to ask, and aside from versatility, what are the benefits of converting the 457 to an IRA, aside from the amount of investment choices, as well as Generation Skipping Options?And anything else you might like to add. Thank you



Submitted by Thomas Coyle on Tue, 2015-01-13 20:27

I am grateful for your expedient response and for the thoroughness of your answer. If we had to plan for more income the NQ Mutual Fund Account could be readly accessed followed by the Allianz Annuity (substantial in size) which is underperforming versus the other securities and Savings Programs. And then there is Social Security. Leading me to ask, and aside from Versatility, what are the benefits of converting the 457 to an IRA, aside from the amount of investment choices , total control, as well as Generation Skipping Options (estate planning tax tool)? And anything else you might like to add. Thank you – Tom Coyle



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