Teacherinneed

Can an Employee Terminate 457b without first quitting my job?

6 posts in this topic

Is it even possible that I terminate my 457b plan while still working (I am only 52 yrs old and want to keep working at my current job) and collect the money that i have already contributed to my account and just pay the normal 10% penalty (plus taxes) that I would incur as if i was to terminate a regular 401 type of plan and put my money somewhere else? Not really pleased with having my money in the 457b. Thanks!

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Only an employer can terminate an employer-sponsored plan. An employee cannot terminate the plan. Is it in fact a 457 plan, or is it a 403(b)? Regardless, I assume you mean you want to receive a current distribution while still employed, and your question should first be directed to your plan administrator/benefits office to see if certain in-service/hardship/loan provisions apply. As a general rule, you can't just withdraw your funds at age 52 while still employed.

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As Belgarath says, an employee cannot terminate a plan; only the employer can. And in the absence of a plan termination, you cannot receive a distribution earlier than the earliest of:

  1. the calendar year in which you turn 70-1/2;
  2. when you have a severance from employment;
  3. when you have an unforeseeable emergency.

Code section 457(d)(1)(A). There is a limited exception to this for governmental plans which allows for a distribution if your total account balance (not including rollovers) is less than $5,000, you haven't made contributions for 2 years, and you haven't received a prior distribution. See Code section 457(e)(9)(A) for details.

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Also, there is no 10% penalty tax for payment before 59.5 under a 457(b) plan. So if you do terminate employment and withdraw the funds taxable before age 59.5 (or 55), you won't be hit with a 10% penalty tax.

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John Feldt is right, except to the extent that the amounts in the 457(b) plan consist of rollovers from another type of plan or IRA.

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Thanks Carol. Yes, if your governmental employer 457(b) plan allows rollovers, those rollover accounts are still subject to the same 10% early penalty tax rules if they are later withdrawn as taxable.

If you work for a non-profit corporation, the 457(b) plan can't have rollovers anyway, the accounts are paid as W-2 wages, and still not subject to the 10% early withdrawal penalty tax.

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