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Change of job: what to do with nongovernmental 457 plan?

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  • Change of job: what to do with nongovernmental 457 plan?

    My wife (IM) is leaving her job in a few months. She has about 40k in a nongovernmental 457 with the employer she is leaving. We are struggling a little with what to do with this money.

    Options as I understand them would be to distribute all the money on departure and pay income tax on it (41% fed, 10% state); or to hold on to it and wait to start distributions.

    We were always a little uncomfortable with the nongovernmental 457 but we did it anyway after maxing out my corporate profit sharing 401k (I am anesthesia) and her 403b in order to decrease our tax burden. The company she is leaving does not appear top be in any financial duress (not sure we would know anyway) but it is sure hard to predict whether they will be in the next 30 years, which is our time frame before we would retire.

    So our thought process has been to liquidate the account when she leaves, pay the nasty tax burden and either put the rest towards student loans or contribute to backdoor Roth IRAs for each of us, which we haven't done yet. Sound reasonable?

    Thanks.

  • #2
    Those are strange plans and you have limited options, like rolling it into another non gov 457 plan or withdrawl.

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    • #3
      Look into whether you can delay distribution until retirement. My plan lets you do that. The chances of her losing her money in the non govt plan is pretty slim. I think the theoretical chance makes us all nervous.

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      • #4
        Very similar to my wife's 457b plan. I would vote leave $ in 457b and set up periodic withdrawal payments for a 5-10 yr period after you expect to retire. If you plan to delay SS and RMDs, this plan is more desirable. Our plan allows for setting up delayed payments up to a max 10 year window with account liquidated completely by age 70. Check your plan documents. I wouldn't worry so much about forfeiture particularly if you have just 40k in and no more future contributions.

        Problems are
        1). Setting up delayed payment schedule is usually an irrevocable decision. (So will require some long term planning to identify the lowest income years to withdraw)
        2). Tough to know exactly when you will retire

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        • #5
          Thanks for the thoughtful replies. It's only 40k now, but it will be >200k by the time we retire (at 6% growth). So while it will still represent a very small part of our portfolio, it is a decent chunk of money to gamble with.

          In favor of keeping it in the 457b until age 60 or so:
          -continued tax free growth
          -reasonable low cost investment options
          -no huge tax burden now at our highest possible tax rate

          In favor of evacuating the 457b now:
          -peace of mind that if her former employer (PeaceHealth) goes under in the next 30 years she won't be impacted
          -some tax diversification by starting Backdoor Roth accounts for us with some of this money (all of our accounts are pretax at this point)

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          • #6
            Even if it reached 200k (no guarantees there) it should represent between 2-3% of our portfolio at retirement age. Basically not enough to lose sleep over.

            I'm beginning to see the wisdom in letting it sit there and grow.

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            • #7
              Is your wife transitioning to a new job that has a non-governmental 457(b) plan? I made such a transition a couple years ago and I was able to roll the money over from the old 457(b) into my current employer's plan.

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              • #8
                I am in a very similar situation.

                I would definitely roll over my current non-gov 457b into my new employer's non-gov 457b except the threshold is different, so I'm not eligible for a 457b at my new employer, not even just for a rollover!

                So my plan is to take distributions starting as late as possible and as spread out as possible.

                My thinking is that taking it sooner, and paying my marginal rate on it while I'm in my peak earning years, is the worst option. I would only do that if I owed money to organized crime! Not to fund Roth's or pay down student loans -- that should come out of money you couldn't tax defer.

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                • #9
                  Her new employee does not offer a 457, so rollover is not an option.

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                  • #10
                    Be sure to read your plan documents.  My 457 which I don't use doesn't even allow rollovers.

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