457(b) Distributions

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
Topic Author
GUdoc
Posts: 7
Joined: Wed Jun 17, 2020 1:11 pm

457(b) Distributions

Post by GUdoc »

I’m leaving my current employer at the end of August and will then have the “60-day window” to elect a distribution date for my non-governmental 457(b). The balance will be approximately $41k.

At the moment it’s unclear whether I will have the option to rollover this distribution into another 457(b).

I must begin to receive payment no later than April 1 of the year following the later of the year in which I turn 70.5, or when my employment terminates.

Which of the following typical forms of payment would be recommended:
Lump sum
Single-life annuity
Joint-life annuity
Fixed-period payments (not less than 5 and no more than 30 years)

My marginal and state tax rates this year will be 35% and 6.85%.

I'm 39 y/o and have been with this employer for three years. Due to a late start on retirement savings, I'm presumably retiring at the age of 68.
runner3081
Posts: 5994
Joined: Mon Aug 22, 2016 3:22 pm

Re: 457(b) Distributions

Post by runner3081 »

If you are going to continue to work, I would opt to stretch them out as long as possible so that they are still paying when you are done working and will likely be in a lower tax bracket.
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: 457(b) Distributions

Post by retiredjg »

Your only rollover option is into another non-governmental 457 plan. You cannot roll it into anything else. Or maybe you meant you do not yet know if there is another non-governmental 457b in your immediate future.

If you elect to delay the distribution, can you take later on but when you want?

Unfortunately, inflexible/limited distribution options is one of the downsides of this type of plan.
runner3081
Posts: 5994
Joined: Mon Aug 22, 2016 3:22 pm

Re: 457(b) Distributions

Post by runner3081 »

retiredjg wrote: Sat May 08, 2021 5:10 pm If you elect to delay the distribution, can you take later on but when you want?
He can only delay one year after he leaves or retires (roughly, with April deadline).
Alan S.
Posts: 12669
Joined: Mon May 16, 2011 6:07 pm
Location: Prescott, AZ

Re: 457(b) Distributions

Post by Alan S. »

Since these plans are unfunded it is important to check your employer’s fiscal health. You can do this by searching for your employer and “bond ratings.” There are firewalls and paid services to wade through, but make sure you find a PDF report of your employer’s bond ratings.

If they have good bond ratings, you can be more confident and take a 5-10-year distribution. If they have poor bond ratings or significant lawsuit liabilities, consider taking a lump sum or 3-5-year distribution.
Topic Author
GUdoc
Posts: 7
Joined: Wed Jun 17, 2020 1:11 pm

Re: 457(b) Distributions

Post by GUdoc »

Thank you for the replies.

I've confirmed with TIAA that I may defer distribution up to RMD age and may receive the distribution over 5-30 years. My current employer is a large academic health system with excellent fiscal health.

I'm leaving this academic medical practice and am joining a private, multi-specialty group practice. I do not yet know if this organization offers a non-governmental 457(b) in which I can rollover this distribution. If it does not, would my best option to be to defer distribution until my expected retirement age (~68)? And over what time frame? 10 years? 20 years?

Do these 457(b) plans also allow rebalancing of asset allocation after leaving the employer?
User avatar
retiredjg
Posts: 54082
Joined: Thu Jan 10, 2008 11:56 am

Re: 457(b) Distributions

Post by retiredjg »

A general statement is to distribute tax-deferred accounts after your tax bracket goes down. That's the whole point of tax-deferral. So I would think you should keep it unless there is a specific reason to distribute earlier.

There is no way to know if this "excellent fiscal health" will last 30 years. You will want to keep an eye on it.
desiderium
Posts: 1264
Joined: Sat Jan 04, 2014 10:08 am

Re: 457(b) Distributions

Post by desiderium »

GUdoc wrote: Sat May 08, 2021 7:57 pm Thank you for the replies.

I've confirmed with TIAA that I may defer distribution up to RMD age and may receive the distribution over 5-30 years. My current employer is a large academic health system with excellent fiscal health.

I'm leaving this academic medical practice and am joining a private, multi-specialty group practice. I do not yet know if this organization offers a non-governmental 457(b) in which I can rollover this distribution. If it does not, would my best option to be to defer distribution until my expected retirement age (~68)? And over what time frame? 10 years? 20 years?

Do these 457(b) plans also allow rebalancing of asset allocation after leaving the employer?
The problem is that you don't really own this like a 401k. At 39, letting someone else keep your money for 30+ years requires a lot of trust. Also, if you work as a specialty surgeon until age 68, it isn't clear that you will ever even be in a lower tax bracket. It isn't very much money, and if you can't roll it into a new plan, I would just take it in a lump sum on termination. You pay the taxes, but unlike 401k you should not be liable for a 10% tax penalty.
Post Reply