(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

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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