Need Advise on rolling simple ira retirement plan into 457 plan

[Brandon Bolinger]

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

[Brian Eastman]

@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.