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  • 457 Distribution Phase

    Does any one have experience with the distribution phase of a 457b?  My employer allows a lump sum or allows the distribution annually over a period of time I specify and I can start it at a time I specify in the future.  I've read the plan documents but what is not clear to me is if I take annual distributions does the money stay invested or does it just sit there as cash.  Any insight?

  • #2
    You'll want to check with the plan administrator, but I think it's safe to assume that the money will remain invested according to the asset allocation you have set.

    If you took a lump sum, all of that money would be subject to income tax.  Under most circumstances, you will be better off spreading out the income over multiple years.  If you are going to another job, you may also be able to transfer from one 457(b) plan to another.  There are governmental and non-governmental 457(b), and there are some differences in what you can do with them.

    Comment


    • #3
      Thanks- I had to get the documents to figure it out but they have pretty liberal distribution options, I can get a periodic payments over any period of years (as long as it doesn't go beyond my actuarial death).  When I separate from my employer I can designate when those payments start (i.e. hopefully when I'm in a lower tax bracket).  They also allow a one time change before payment starts to defer the payments further into the future.  It's just not clear to me if the money annuitizes or stays invested.  It's a nice option if I get to retire early, unlikely given I didn't start med school until I was 30.  However, might be nice to supplement part time income if needed, the thought of practicing Emergency Medicine in my 60's worries me a bit

      Comment


      • #4
        Just to tie this up for those searching in the future, I talked to my plan administrator and the money stays invested and I still direct it during the distribution phase.

        Comment


        • #5
          Thanks for the update.  Looking at the replies in the other 457 thread, it seems the rules of different plans vary widely.

          Comment


          • #6
            I am interested in this as well. I am a young physician and still have many years. I am an employee obviously and I have been reading lots about 457b. My company actually allows only two options. It's either a lump sum pay out or you can do a direct roll over to an Ira. I wasplanning to contribute only to a certain amount but my plan administrator just got back to me and clarified that the direct roll over to an Ira is an option for our plan. I do not think that is common and have never read much about it so I was wondering if anyone had thoughts or suggestions with a plan like this. Is it a good idea.  There is no match but at least I can put away 18,000 yearly and when I retire I can immediately roll it over to an IRA to avoid paying tax and get it under my control. The only downfall other than it being company assets that I see is if I retire early I won't be able to do a back door Roth anymore with my Ira but I should be at least 55 by then and only moonlighting or doing locums work.

            Comment


            • #7
              I have access to a 457 as well and it is non-governmental, has several low ER vangaurd funds and has quite a few options for disbursement... it took me a while to find this information online but I did eventually stumble across it after 15 different iterations of a google search.  Here are my options:

              • Fixed Period

                You can choose to receive income for a set period of two to 30 years, depending on the terms of our contract and your plan's rules (and not to exceed your life expectancy).

                • Payments stop at the end of the period, during which you will have received all your principal and earnings.



              • Lifetime Retirement Income



                • One-life annuity — provides income for as long as you live.

                • Two-life annuity — provides lifetime income for you and an annuity partner (your spouse or someone else you name) for as long as either of you live.

                • One- or two-life annuity with guaranteed period — guarantees income for up to 20 years, as long as the period you choose does not exceed your life expectancy. It ensures that income continues to go to your beneficiaries for the remainder of the guaranteed period if you (one-life annuity) or both you and your annuity partner (two-life annuity) die before the end of that period.



              • Lump Sum

                You can withdraw all or part of your account in a single cash payment, depending on your plan rules and the terms of your contracts.

                • Your right to a lump-sum distribution from your TIAA Traditional Account may be restricted to taking 10 annual payments under those terms.



              • Minimum Distribution Option

                Generally, you must begin taking minimum withdrawals from your account by April 1 following the year in which you turn age 70½ or retire, whichever is later.

                • This can help you defer the minimum required distribution while keeping you in compliance with federal regulations.



              • Rollover

                If you have had an IRS-defined "triggering event," and your plan allows withdrawals, you can roll over your accumulations to another retirement plan that will accept them or to an Individual Retirement Account (IRA).*

                • Direct rollovers — from one account to another — are nontaxable and not reported as income to the federal government. Your plan's rules specify when you are eligible for a distribution.



              • Retirement Transition Benefit

                If your contract allows, you can withdraw, in cash, up to 10% of your accumulation at the beginning of a conversion to lifetime annuity income. The amount you withdraw will reduce your lifetime annuity income accordingly.

              • Single-Sum Death Benefit

                 A set amount your beneficiary(ies) will receive from your retirement account if you die before taking income.


              Interestingly it also says I can take a loan from this account as a non-taxable event (as long as paid back within 5 years) of 50% of my account or 50k whichever is lower.  I can't find any info on the interest rate and honestly can't ever see myself doing this, but I guess it is nice to have options?!?

              Anyone have an opinion on doing an annuity from a 457b plan or is this another case of mixing two decent ideas to get one bad product?  I know next to nothing about annuities and have no information on cost, but if someone has done the leg work and has a strong opinion I would be happy to listen!

              Otherwise, I plan on retiring early and emptying the 457(b)/Roth converting until I am forced to use the 403(b)/pension/Social Security/taxable account funds by either age or lack of money.

              first post, thanks for everyone's contribution to the site.  I am both encouraged and amazed by the success of WCI himself as well as other members of the board.  I am also a new graduate and fairly new to the investment game so please help me if you spot glaring holes in my knowledge base.

              Comment


              • #8
                I'm not an expert, but have been reading, and it seems that the above are both describing governmental 457(b) plans, while mine is not.  I have not seen anything that allows a rollover to an IRA in a non-governmental plan and that's a big disadvantage if you change jobs, as you will need to make distribution plan when you separate.  It could also be a problem if you have to take a lump sum in a year that you are in a high tax bracket when you change jobs, but no big deal if you can rollover to an IRA.  My understanding is a governmental 457 could be rolled to a 403(b), 401(k) as well as an IRA if your new employer offers it, that would solve the backdoor Roth issue.  If a "triggering" event is separation this seems like a great option, the only downside being if you rolled to an IRA you could not take early distributions if your retired before 59.5 years old (this is not an issue for me, as much as I'd like it to be!).  It would be nice to have an annuity option at disbursement, hard to evaluate it at this time but could transfer risk at retirement.

                Comment


                • #9




                  I am interested in this as well. I am a young physician and still have many years. I am an employee obviously and I have been reading lots about 457b. My company actually allows only two options. It’s either a lump sum pay out or you can do a direct roll over to an Ira. I wasplanning to contribute only to a certain amount but my plan administrator just got back to me and clarified that the direct roll over to an Ira is an option for our plan. I do not think that is common and have never read much about it so I was wondering if anyone had thoughts or suggestions with a plan like this. Is it a good idea.  There is no match but at least I can put away 18,000 yearly and when I retire I can immediately roll it over to an IRA to avoid paying tax and get it under my control. The only downfall other than it being company assets that I see is if I retire early I won’t be able to do a back door Roth anymore with my Ira but I should be at least 55 by then and only moonlighting or doing locums work.
                  Click to expand...


                  Sounds like a governmental 457 to me.  Non-governmental can only be rolled over into another non-governmental plan.
                  Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                  Comment


                  • #10


                    Anyone have an opinion on doing an annuity from a 457b plan or is this another case of mixing two decent ideas to get one bad product?  I know next to nothing about annuities and have no information on cost, but if someone has done the leg work and has a strong opinion I would be happy to listen!
                    Click to expand...


                    Hi, willpmd, I have very strong opinions about most annuities (negative), but would you mind clarifying your question? Are you asking about purchasing an annuity inside your 457b? Or rolling out to an annuity in the future? Is there a specific reason you are looking at an annuity?
                    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

                    Comment


                    • #11




                      I have access to a 457 as well and it is non-governmental, has several low ER vangaurd funds and has quite a few options for disbursement… it took me a while to find this information online but I did eventually stumble across it after 15 different iterations of a google search.  Here are my options:

                      • Fixed Period You can choose to receive income for a set period of two to 30 years, depending on the terms of our contract and your plan’s rules (and not to exceed your life expectancy).

                        • Payments stop at the end of the period, during which you will have received all your principal and earnings.



                      • Lifetime Retirement Income  

                        • One-life annuity — provides income for as long as you live.

                        • Two-life annuity — provides lifetime income for you and an annuity partner (your spouse or someone else you name) for as long as either of you live.

                        • One- or two-life annuity with guaranteed period — guarantees income for up to 20 years, as long as the period you choose does not exceed your life expectancy. It ensures that income continues to go to your beneficiaries for the remainder of the guaranteed period if you (one-life annuity) or both you and your annuity partner (two-life annuity) die before the end of that period.



                      • Lump Sum You can withdraw all or part of your account in a single cash payment, depending on your plan rules and the terms of your contracts.

                        • Your right to a lump-sum distribution from your TIAA Traditional Account may be restricted to taking 10 annual payments under those terms.



                      • Minimum Distribution Option Generally, you must begin taking minimum withdrawals from your account by April 1 following the year in which you turn age 70½ or retire, whichever is later.

                        • This can help you defer the minimum required distribution while keeping you in compliance with federal regulations.



                      • Rollover If you have had an IRS-defined “triggering event,” and your plan allows withdrawals, you can roll over your accumulations to another retirement plan that will accept them or to an Individual Retirement Account (IRA).*

                        • Direct rollovers — from one account to another — are nontaxable and not reported as income to the federal government. Your plan’s rules specify when you are eligible for a distribution.



                      • Retirement Transition Benefit If your contract allows, you can withdraw, in cash, up to 10% of your accumulation at the beginning of a conversion to lifetime annuity income. The amount you withdraw will reduce your lifetime annuity income accordingly.

                      • Single-Sum Death Benefit  A set amount your beneficiary(ies) will receive from your retirement account if you die before taking income.


                      Interestingly it also says I can take a loan from this account as a non-taxable event (as long as paid back within 5 years) of 50% of my account or 50k whichever is lower.  I can’t find any info on the interest rate and honestly can’t ever see myself doing this, but I guess it is nice to have options?!?

                      Anyone have an opinion on doing an annuity from a 457b plan or is this another case of mixing two decent ideas to get one bad product?  I know next to nothing about annuities and have no information on cost, but if someone has done the leg work and has a strong opinion I would be happy to listen!

                      Otherwise, I plan on retiring early and emptying the 457(b)/Roth converting until I am forced to use the 403(b)/pension/Social Security/taxable account funds by either age or lack of money.

                      first post, thanks for everyone’s contribution to the site.  I am both encouraged and amazed by the success of WCI himself as well as other members of the board.  I am also a new graduate and fairly new to the investment game so please help me if you spot glaring holes in my knowledge base.
                      Click to expand...


                      In most cases annuities are worse than the alternatives, but prior to retirement it might make sense (for some) to annuitize part of their retirement savings.  Those who have plenty of principal though might not want annuities at all.
                      Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                      Comment


                      • #12
                        I only asked because I came across the information that I could convert my 457 to an annuity rather than taking disbursements while trying to find more information on my 457 plan.  I would assume that the devil is in the details and whether it is a legitimate option would depend on my wants/needs and plan cost.  I really just wanted to see if anyone on the site had the same option and had found it beneficial to use that option in their planning.

                        I also wanted to give the board access to the details of my plan so they could have something to compare their options with on 457b.

                        Comment


                        • #13
                          I was told that my plan is non-governmental by one of our benefits "specialists".

                          Comment


                          • #14




                            I was told that my plan is non-governmental by one of our benefits “specialists”.
                            Click to expand...


                            Where does it say that you can roll this plan into an IRA?  Non-governmental can only go into another non-governmental.

                            Yes, you can annuitize your plan's assets, but whether you want to do this or not would depend on many factors.  However, this is the same as taking a distribution because the annuity will essentially give you your own money back.  If you have the flexibility in how you take the distribution, that would be preferable to annuitizing in most cases.
                            Kon Litovsky, Principal, Litovsky Asset Management | [email protected] | 401k and Cash Balance plans for solo and group practices, fixed/flat fee, no AUM fees

                            Comment


                            • #15






                              Click to expand…


                              In most cases annuities are worse than the alternatives, but prior to retirement it might make sense (for some) to annuitize part of their retirement savings.  Those who have plenty of principal though might not want annuities at all.
                              Click to expand...


                              What are some scenarios where it would advisable to annuitize part of one's retirement savings?

                               

                              Comment

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