Need Advise on rolling simple ira retirement plan into 457 plan

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Need Advise on rolling simple ira retirement plan into 457 plan

Brandon BolingerPro Member
Rental Property Investor · Huntington, IN · Member since 2018 · 5 posts · 0 votes

I have a simple ira from previous employer that I am considering rolling into my 457 plan. I have been considering it for awhile but can't find the correct answers. On one of the Bigger Pockets Money podcasts a few years ago Mindy Jensen stated that anyone that has a 457 Plan would be smart to roll other accounts into it due to having access to the money once you separate from that employer without penalties. I don't have any desire to start pulling money out of the plan but I like the thought of having access to it with out penalties if I were to separate from my employer. (I'm planning on my real estate to be my primary retirement income.) Reading through the IRS website it says I can roll my simple ira into my 457 but it says it must be tracked in a separate account. What I can't get clarification on is if the 10% penalty remains with that money. If the 10% penalty stays with that money then I don't see the benefit of rolling it into my 457 like Mindy was saying. The guy that runs my 457 plan said from what he found the 10% penalty stays with the money and he doesn't see a benefit from rolling it in. Can anyone help me clarify this? Also would you have any other recommendations of better strategies. My thought is to be able to use this money at some point to help fund my Real Estate investing. I also like the idea of doing a self directed IRA but haven't educated myself enough to consider it. Thanks

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Brian EastmanPro Member
Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes
4y

@Brandon Bolinger

The 10% penalty for early distribution applies to a 457 plan when the funds in question were rolled into the plan from a plan other than another 457 plan.

Because the rolled in amount is segregated for reporting, you can distribute prior to age 59 1/2 from true 457 funds and leave the non-457 rolled in funds in the plan.  Not sure that achieves your goal, but that is how it works.

A self-directed IRA may be an option for you, but does not give YOU access to the funds to invest in YOUR real estate deals and draw income from that activity. A self-directed IRA is a means for the IRA to invest in real estate (or other allowable assets) rather than be limited to investing in the stock market. All investments remain under the umbrella of the IRA and must be kept separate from personal finances.

Separately, a SIMPLE IRA needs to have been in place for at least 2 years before it can be rolled over to any plan other than another SIMPLE IRA.

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  • William Joel Idleman
    Financial Advisor · San Antonio Texas · Member since 2022 · 100 posts · 53 votes
    4y

    Brandon - a 457 plan is a nice secret and not easy to access because you have to be working for the gov or a not for profit to qualify for one, last time I checked.  Things change quickly these days.  According to my research you can withdrawal from a 457 without the 10% penalty at any age.  However, be mindful that you will need to pay taxes on that money as earned income.  So if you made $50k and withdrew $20k, then you're income in $70k for the year and you'll be taxed appropriately.  I provided an investopedia link below.  I've found that they are generally pretty accurate.

    Are 457 Plan Withdrawals Taxable? (investopedia.com)

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  • Claudia Guzman
    Member since 2022 · 2 posts · 0 votes
    4y

    Hi Brandon, You can roll both plans into a self directed IRA or 401K and start investing that way to grow your retirement account. There is no penalty for rolling over as long as you pick a qualified plan.

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  • Brian EastmanPro Member
    Self Directed IRA & 401k Advisor · Wenatchee, WA · Member since 2014 · 2k+ posts · 2k+ votes
    4y

    @Brandon Bolinger

    The 10% penalty for early distribution applies to a 457 plan when the funds in question were rolled into the plan from a plan other than another 457 plan.

    Because the rolled in amount is segregated for reporting, you can distribute prior to age 59 1/2 from true 457 funds and leave the non-457 rolled in funds in the plan.  Not sure that achieves your goal, but that is how it works.

    A self-directed IRA may be an option for you, but does not give YOU access to the funds to invest in YOUR real estate deals and draw income from that activity. A self-directed IRA is a means for the IRA to invest in real estate (or other allowable assets) rather than be limited to investing in the stock market. All investments remain under the umbrella of the IRA and must be kept separate from personal finances.

    Separately, a SIMPLE IRA needs to have been in place for at least 2 years before it can be rolled over to any plan other than another SIMPLE IRA.

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