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(b)lines Ask the Experts – Rolling From a Governmental 457(b) to a 403(b)

We are a private tax-exempt health care organization that sponsors a 403(b) plan. One of our new physicians used to work for the state, and has a 457(b) plan balance. Can this physician roll her 457(b) balance into the 403(b) plan?”

By PS | April 11, 2017

David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer: 

Yes, but there is a potential disadvantage about which the physician should be aware. Rollovers from governmental 457(b) plans are permitted to a 403(b) plan (as opposed to 457(b) plans of private tax-exempts, which are NOT eligible for rollover). However the physician should be made aware that 457(b) plans are NOT subject to the 10% premature distribution penalty that is generally applicable to distributions taken prior to age 59 1/2. That tax advantage is lost if the funds are rolled over into a 403(b) plan. Thus, if the physician wishes to retire early, she would lose access to a penalty-free distribution from the 457(b) plan if she rolled such funds into a 403(b). Any distribution taken would indeed be subject to the 10% penalty.

 

NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.  

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