How to Cash Out a 457b Plan

If you work for a state or local government agency, you might have access to a 457b deferred compensation plan. The 457b plan is designed to help you save for retirement, so there are some very specific rules about when and how you can access that money. Failure to follow the established rules can result in hefty tax penalties, reducing the value of your plan and leaving you short of expected funds when retirement comes. You can cash out your 457b plan when you retire, leave your job for any reason or have unforeseen emergencies, as defined by the IRS.

Things You'll Need

• 457b plan account statement

Instructions

1. Consult with an accountant or tax expert to determine your tax liability for the money you are cashing out of the plan. Funds in a 457b plan are allowed to grow tax-deferred, but are subject to taxation when you withdraw them.

2. Contact the administrator of the 457b plan. The contact information for the plan administrator should be listed on your account statement. Let the administrator know you want to cash out the plan, and specify whether you want to receive the funds via check or electronic transfer.

3. Make copies of all paperwork related to your 457b plan. Keep these documents with your tax information; you will need them when you prepare your income taxes.

Tips & Warnings

• A mandatory income tax of 20 percent is withheld when directly withdrawing money from a 457b fund that is eligible for rollover to another retirement plan.

References

• ICMA-RC: 457 Plan Withdrawals
• Morningstar: 457 Plans