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Nongovernmental 457 distribution recommendations

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  • Nongovernmental 457 distribution recommendations

    I am 58 and retired, spouse is 56 and will probably retire in a year. I have a nongovernmental 457 worth about $70 k. I need to make distribution elections. I can start taking distributions between now and age 72. Can lump sum or take annually over 10 years. We don’t need the money. I will likely do Roth conversions to the 24% tax bracket, if not this year, starting in 2023. Since I stopped working last year we are in the 24% tax bracket after years of top tax bracket. We have done back door Roths since that was available, but our Roth holdings are still less than 10% of our investments. We are in a no income tax state, so that is not a factor. I have a history of cancer, and although currently doing well, my longevity is more uncertain than average. I do not have details on the distribution of the 457 upon my death yet. I believe the healthcare system that was my employer is financially sound. We don’t need the money currently. I can withhold as much of the distribution as I like when I make the elections. I am seeking advice as to what distribution elections I should take. I’m not really considering lump sum at any time, but asking for reasoned advice for when I should elect to start the 10 year distributions. Or convince me that a lump sum is a good idea. Any and all input appreciated.

  • #2
    I'm not really seeing any instance where it matters that much, especially spread over 10 years. Whatever else you do (draw down, Roth conversions, etc) will just be adjusted for it. I'd probably take it earlier in case you run into IRMMA problems, but you might with RMDs too.

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    • #3
      I'd get it done after the wife retires, the sooner the better. 10 years gets you to Social Security. If you can handle it before 65, even better.
      The Roth is better future tax and the taxable is capital gains. Without knowing how much you much you need to convert to Roth, can't really tell. No clue of the RMD potential.

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      • #4
        Maybe a slightly different perspective, but I’d take the lump sum. My rationale is pure simplification. The income stream doesn’t matter to you. And it is only $70k. The tax will happen sooner or later and rates are pretty good now. Unless you are riding close to the marginal limits it probably won’t affect your tax bracket. Take it, redeploy the funds to an investment or, heck, splurge on a trip when your wife retires.

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        • #5
          I would drain it prior to 63 to avoid IRMAA.

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          • #6
            Thank you for the all input. I will probably take over 10 years starting at the end of 2023. And withhold a large percent. I doubt we will be avoiding IRMAA regardless of what we do. At least if we try to convert a reasonable amount of our pre tax deferred retirement accounts. I realize that the RMD issue is slightly over-hyped, except with the scenario of going from MFJ to S filer.

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            • #7
              David Graham, MD
              FIPhysician dot com might be worth the money to you. This is the type of thing he focuses upon. Hourly Advice-only Planning: $250
              No connection, has had positive comments.

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              • #8
                Consider transferring the balance into a stable value fund if one is offered to preserve the value (relatively speaking) as part of your bond allocation. I recommend just starting your 10 year distribution now. (The money does not belong to you, it’s your employer’s, until you withdraw). The ~$7000+/yr is not likely to bump you into the 32% bracket, and they will withhold taxes on the distribution for you.

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