Clear Money Guide
What this guide covers
A quick view of the questions and evidence developed below.
Updated August 3, 2026. Quick answer: you have four options and they are not equal. Leaving it in the plan preserves the one feature you cannot buy anywhere else — no 10% early-withdrawal tax at any age. Rolling it to an IRA destroys that permanently. Most people are told to roll it, and for a governmental 457(b) that advice is usually backwards.
The four options
- Leave it. Keeps the penalty exemption. Usually the right default if you might need the money before 59½.
- Take distributions. Available after separation without the 10% tax, at any age, subject to your plan’s own payout rules. Ordinary income tax applies.
- Roll to a new employer’s plan. Possible between governmental 457(b) plans; check whether the receiving plan tracks the money’s character.
- Roll to an IRA. Convenient, more investment choice — and it ends the exemption. An IRA is on the 4974(c) list, so the 10% tax applies before 59½.
The question that decides it
Not which has better funds. Will you need this money before 59½? If there is a realistic chance, the 457(b) is the account to keep exactly where it is, and to spend first. If you are already past 59½ and will not touch it for years, the exemption is worth nothing to you and the ordinary comparison — costs, funds, consolidation — applies normally.
The thing to check before you move anything
Related: the exemption, from the statute · how it compares to the rule of 55 · the same question for federal workers.
Money you rolled in may not have carried its exemption with it.
If you ever rolled an old 401(k) or 403(b) into this 457(b), that portion never gained the exemption: 72(t)(9) keeps it penalty-exposed and it should be tracked separately. Ask the administrator for the split before assuming the whole balance is penalty-free.
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Penalty and limit statements on this page are read from the Internal Revenue Code itself (26 U.S.C. 72, 402, 414, 457 and 4974) and from IRS Notice 2025-67 for the 2026 figures. General information, not tax advice; your plan document can be more restrictive than the Code, and it governs what your plan actually allows.