How to Withdraw Funds From a 457 Plan

Posted by Anonymous , 9/4/2007 Tags:WithdrawFundsFrom457Plan
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How to Withdraw Funds From a 457 Plan

Introduction

The holder of a Section 457 retirement account may withdraw existing funds at any time and must pay pending taxes, but no additional penalties, on the amount. This retirement plan is available only through state and federal employers and some nonprofit organizations. It allows workers to defer salary tax-free until retirement. A 457 plan is slightly more flexible than a 401(k) or 403(b) when it comes to withdrawals.

Instructions

Difficulty: Moderately Easy

Withdraw 457 Plan Funds Before Retirement

Steps

1

Step One

Request all or part of your Section 457 funds in the case of extreme hardship or emergency. Your plan will contain an official definition of these conditions that you must meet.
2

Step Two

Roll 457 retirement savings over into a new 457 account when you switch jobs rather than withdrawing and reinvesting.
3

Step Three

Liquidate your 457 tax-deferred account when you terminate your employment before retirement. The released funds will become taxable at this point.

Withdraw 457 Plan Savings Upon Retirement

Steps

1

Step One

Begin removing the funds from your Section 457 employee retirement plan by April 1 after the year you turn 70, or you may have to pay a federal tax penalty to the IRS.
2

Step Two

Retire early and withdraw 457 funds at whichever age you choose. There is no minimum age limit that is subject to penalty.
3

Step Three

Withdraw your 457 retirement savings in multiple payments that are calculated by actuarial tables. Your plan administrator will facilitate this option.
4

Step Four

Take your money out of the 457 retirement account all at once and close it. This may create a greater impact on your overall tax obligations, however.

Tips & Warnings

  • A "nonqualified" retirement plan, such as the 457, suffers no penalties for early withdrawal of eligible money.
  • You can transfer funds to another 457 account if you change public sector jobs.
  • You can withdraw funds when you change jobs, as long as plan-specific rules are met.
  • Your employer may have to grant permission for you to withdraw 457 funds. Check with your plan administrator to find out which funds are eligible for withdrawal at what time.
  • Consult a tax expert if you suspect that withdrawing your 457 savings will adversely affect your current financial status.
  • Down payments on a house or college tuition are not considered eligible grounds for withdrawal of 457 funds.
  • Keep in mind that there are yearly maximums that you can contribute to your Section 457 plan, as determined by the IRS. This may not be enough to maintain your lifestyle during retirement, so be sure to do the math before relying solely on a 457 payout plan during retirement.
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