457(b) withdrawal

[jbmitt]

With a change in employment, we are reviewing our options with a 457(b).  It is through a hospital system, so it appears to be non-governmental, and likely unable to be rolled over.

From the plan information:

Can I make withdrawals?
Within 30 days from your separation of employment, you must choose to receive your payment:

In a single lump sum payable 30 days after your date of termination

In a single lump sum deferred to a future date, but no later than the date you reach 70½ years of age

As monthly or annual payments of a chosen amount for a period not to exceed fifteen (15) years and continuing until the Account is exhausted. The payment start date can be deferred to a later date but no later than the date you reach 70½ years of age.

 

My question is whether there is a rhyme or reason to which option to select?  We're talking approximately $45,000 that would be paid as additional income.  Compensation this year will be less, as it will be 10 months of income vs 12.  However, a signing bonus and paid relocation (possibly taxable with new tax plan) would bump total compensation to the equivalent of 12 months income.  Production kicks in at two years.  I'm also a little uneasy about the assets being accessible to creditors if the old hospital system were to face financial challenges.

 

 

[jfoxcpacfp]

Just to make sure, your spouse is not going to work for another entity with a nongovernmental plan that s/he can roll into? And the funds are all pre-tax?

Are you happy with how the 457b is invested? There is some rhyme or reason to the solution. If you're happy where it is, stretch it out over time and have a plan in place for the use of the proceeds each year, such as to the kids' 529 plans. If you're not happy, spread it out over 3 - 5 years (pulled those #'s out of my hat), whatever amount keeps you from going into the next tax bracket. Also to consider: the rate at which your spouse will grow into the contract. If income is expected to rise steeply after 2 or 3 years, take it out over that time period.

If you're really, truly worried that the hospital might have financial challenges, take the bird in the hand and look at is as better than nothing (probably not what I'd recommend).

Given that so many employees change jobs before retiring with a NG 457b, and the onerous withdrawal requirements in many of these plans, I think this makes a good case for saving in the Roth portion of a nongovernmental 457b, where available. I'm running into too many of these that are wreaking havoc on clients' tax planning. Read your SPD when you start participating. Even better, ask for a copy of it when you are comparing the benefits of various job offers.

[jz]

The questions that arise from NG 457 distributions bolster my opinion that NG457s work better at the end of one's working career, rather than at the beginning. It's easier to assess the bankruptcy risk at 10 years away than 25 years away.  Also, there are plenty of other options to invest/pay in the  early decades, like 529s, mortgages, taxable, student loans, retirements.

[q-school]

jz wrote:

The questions that arise from NG 457 distributions bolster my opinion that NG457s work better at the end of one’s working career, rather than at the beginning. It’s easier to assess the bankruptcy risk at 10 years away than 25 years away.  Also, there are plenty of other options to invest/pay in the  early decades, like 529s, mortgages, taxable, student loans, retirements.

Click to expand...

thats how i viewed them.  my wife took her ng 457 as a lump sum at time of separation.  that was the only option offered by employer, making it easier to decide.  

[jbmitt]

jfoxcpacfp wrote:

Just to make sure, your spouse is not going to work for another entity with a nongovernmental plan that s/he can roll into?

We're trying to obtain the plan information at the new employer.  Timing is going to be an issue as she has to make the decision prior to enrolling in the new plan.  We don't know for sure if it accepts rollovers.

And the funds are all pre-tax?

Yes.

Are you happy with how the 457b is invested?

Yes.

There is some rhyme or reason to the solution. If you’re happy where it is, stretch it out over time and have a plan in place for the use of the proceeds each year, such as to the kids’ 529 plans. If you’re not happy, spread it out over 3 – 5 years (pulled those #’s out of my hat), whatever amount keeps you from going into the next tax bracket. Also to consider: the rate at which your spouse will grow into the contract. If income is expected to rise steeply after 2 or 3 years, take it out over that time period. If you’re really, truly worried that the hospital might have financial challenges, take the bird in the hand and look at is as better than nothing (probably not what I’d recommend). Given that so many employees change jobs before retiring with a NG 457b, and the onerous withdrawal requirements in many of these plans, I think this makes a good case for saving in the Roth portion of a nongovernmental 457b, where available. I’m running into too many of these that are wreaking havoc on clients’ tax planning. Read your SPD when you start participating. Even better, ask for a copy of it when you are comparing the benefits of various job offers.

Thank you very much for your perspective.  We initially used the 457 to help offset an approximately 100,000 bonus, and then the following year because of a big bump on production.  The other idea was that it would be money, besides household savings, if we were to ever need to purchase tail coverage.  Fortunately, that was negotiated in such a way that we don't have to pay for it.

[jbmitt]

q-school wrote:

jz wrote: The questions that arise from NG 457 distributions bolster my opinion that NG457s work better at the end of one’s working career, rather than at the beginning. It’s easier to assess the bankruptcy risk at 10 years away than 25 years away.  Also, there are plenty of other options to invest/pay in the  early decades, like 529s, mortgages, taxable, student loans, retirements. thats how i viewed them.  my wife took her ng 457 as a lump sum at time of separation.  that was the only option offered by employer, making it easier to decide.

Click to expand...

I'm adopting this perspective as well.

[PhysicianOnFIRE]

I was able to roll a NG 457(b) to another NG 457(b) with a new employer. Be sure you look into that option if you're changing jobs to an employer that also offers one.

 

Obviously, the lump sum can result in a big tax hit. Waiting many years leaves that money in limbo where it is a credit risk if the old employer goes belly up.

My plan is to withdraw mine over 5 to 10 years when I retire.

[TheGipper]

Agree with PoF plan if the amount is substantial. Ideally timed to begin after BOTH spouses are retired and to finish before age 70.

[Miss Bonnie MD]

I had about the same amount in a private/NG 457b and decided to cash it all out despite having some flexible distribution options. I guess it came down to - not a crazy huge amount and more importantly I wanted to be in control of the money.