457 state government R/O to IRA
Do most state sponsored 457 plans give the participant the opportunity to withdraw funds without penalty for those under 59 1/2 upon retirement?
I have a client who is retiring from the State of Oklahoma, and I want to be sure I know about and explain the options before we start the R/O paperwork.
Thanks!
Permalink Submitted by Alan Spross on Mon, 2008-09-15 18:22
There is no early withdrawal penalty on a 457 plan, as these plans are non qualified. The penalty applies to qualified retirement plan early distributions. In any event, funds directly rolled into an IRA are not subject to penalty from any plan.
If the plan has flexible distribution options, it may be best to take them directly from the plan since there is no penalty. However, if a transfer to an IRA is done and employee needs funds from the IRA pre age 59.5, an early withdrawal penalty will apply. One way to avoid that penalty is to start a 72t plan (SEPP), however those plans have rigid requirements and they should be avoided if there is more flexible options to receive funds penalty free. The plan administrator should know what flexible withdrawal options the plan offers until age 59.5.
Note: A government 457 can be rolled to an IRA, but not a non govt 457.