Q. I’m 55 and retiring in November. I have a 457 plan worth $75,000 that I will have to reinvest. I don’t plan to use this money immediately because I have other retirement funding. What should I do?
— In the money
A. Congratulations on your upcoming retirement.
Before considering your options, it’s important to understand the type of 457 plan that you have, said Kenneth Van Leeuwen, a certified financial planner with Van Leeuwen & Company in Princeton.
If you have a governmental 457(b) plan, you will have the option to roll over your account to a traditional IRA, he said.
If you have a 457(b) plan at a private tax-exempt organization or a 457(f) plan at a private non-profit, you do not have the option to rollover your account, and you will most likely have to take the funds as a lump sum upon retirement, which will be fully taxable, he said.
If you have a governmental 457(b) and are not planning on immediately using these funds for income upon retirement, you have several options.
You can consider rolling over the funds into a traditional IRA, Van Leeuwen said.
“A rollover into a traditional IRA will allow you to maintain the tax-deferred status of your 457-plan,” he said. “This will allow these funds to continue to grow, and no taxes will be owed at the time of the rollover.”
Rolling over the funds into an IRA also offers additional benefits, such as having a larger pool of investments to choose from as opposed to the limited choices offered in the plan, Van Leeuwen said.4
You also have the option of leaving the funds in the 457 plan to continue to be invested as they previously were.
“This may be a more cost-effective option; however you will be limited to the investment options provided by the plan,” he said. “Please note that while you do not have to take any withdrawals from the IRA when you retire, the IRS requires that you start taking minimum distributions from the account at age 72.”
