How quickly after leaving a job can you roll over funds from a 403(b) or 457 plan? So if you are RIFfed but it is possible you might be hired back, can you roll it over in that lapsed time (after school year officially ends?)
If you receive a reduction in force (RIF) notice, you may be rehired by your employer or you may be hired by another school district or an employer other than a public school district. All of these options offer the possibility of rolling over the funds from your 403(b) or 457 plan.
When you leave your employer, you have four options for your 403(b) or 457 plan:
- Roll it over to an individual retirement account (IRA) with no tax consequences using a direct rollover. This preserves the tax-deferred status of your money. For a direct rollover, your plan’s distribution check may, at your employer’s discretion, be given to you or sent directly to the trustee of your new IRA. In either case, the rollover check must be made payable to the trustee.
- Roll it over to a new employer’s plan, if that plan accepts rollovers. This also preserves your money’s tax-deferred status.
- Leave it in your current plan (subject to the rules of your plan). If you choose this option, you can decide to roll it over at a later date.
- Cash out and take a lump sum payment. You will have to pay ordinary income taxes on the distribution and, if you are younger than age 55, you may owe a 10% penalty tax on distributions from a 403(b) plan. Distributions from a 457 plan are subject to ordinary income tax, but not the penalty. Not only can this option be costly because of the taxes and possible penalty, but it can jeopardize your financial security in retirement. Once you withdraw funds from your retirement plan, you will never have the opportunity to replace them. You lose the potential for all future tax-deferred compounding on that money.
Important Note: CTA does not give tax, legal or investment advice. You should meet with your tax, legal, and/or investment advisor to determine the best fit for your situation.