Can You Roll Over a 457 Into a Roth IRA?
Both 457 plans and Roth IRAs are tax-advantaged retirement plans. A 457 plan is an employer-sponsored plan akin to a 401k plan offered by certain state and local governments or other tax-exempt employers. A Roth IRA is an after-tax investment account established by individual owners. Most 457 plans are eligible for rollover to a Roth IRA, although there may be eligibility restrictions and tax consequences to the transfer.
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Eligibility
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Like a 401k plan, most 457 plans can be rolled into a Roth IRA. The primary exception to this rule is the 457f plan. Most governmental units offer a 457b plan, which has no restrictions on transferability to a Roth IRA. However, certain nongovernment businesses are only permitted to offer 457f plans, which are not convertible to Roth IRAs but are similar in other respects to a 457b plan.
Taxation
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Contributions to 457 plans are made on a pre-tax basis, and distributions are taxable at ordinary income tax rates. As contributions to a Roth IRA can only be made on an after-tax basis, all rollovers into a Roth IRA are taxable as well. Regardless of how you earned your income in your 457 plan, you must pay ordinary income tax rates on the rollover amount and not the generally lower capital gains tax rates.
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Income Limitations
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Historically, you could not roll over any retirement account to a Roth IRA if your modified adjusted gross income exceeded $100,000. The IRS waived this provision in 2010. You can now make a rollover contribution from a 457 plan to a Roth IRA regardless of your income.
Types of Rollovers
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The fastest and typically safest way to transfer your 457 money to your Roth IRA is to contact your 457 administrator and ask for a trustee-to-trustee transfer. If you provide the administrator with information about your Roth IRA, such as the name of the receiving institution and your account number, your funds can be transferred electronically without the need for you to physically handle the distribution. If you prefer, you can ask for the 457 administrator to send you a check for the balance of your account, which you must redeposit in your Roth IRA within 60 days. Failure to complete this rollover within the 60-day window results in your rollover being treated as a distribution. In addition to ordinary income tax, if you are under the age of 59 1/2 you will owe a 10 percent early withdrawal penalty. Additionally, unless your plan balance is below $5,000 you can no longer deposit the funds in your Roth, as the annual contribution limit for all IRA accounts is $5,000.
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