457(b) Plans for Expats

A 457(b) does not usually disappear when you move abroad, but the right planning route depends heavily on the type of plan.

A review should usually consider:

• whether the plan is governmental or non-governmental
• whether the account is with a current or former employer
• whether you have separated from service
• whether distribution elections have already been made
• whether those distribution elections can be changed
• whether rollover is permitted
• whether rollover would be suitable
• whether the plan accepts or restricts foreign addresses
• whether online access remains available abroad
• whether trading or investment changes are restricted
• whether the investment menu is still suitable
• whether fees are reasonable
• whether plan assets remain subject to employer creditors
• whether US withholding may apply
• whether local tax may apply
• whether RMDs apply
• whether beneficiary forms are current
• whether the account should be coordinated with 401(k), 403(b), IRA, Roth IRA or TSP accounts
• whether you may return to the United States later

IRS guidance explains that 457(b) plans are deferred compensation plans for state and local governments and certain tax-exempt organisations.

IRS guidance also explains that non-governmental 457(b) plans can have distinct rules, including distribution restrictions and no participant loans.

The planning point is that a 457(b) should not be treated as a generic retirement account.

Before deciding whether to keep, draw, defer or roll over a 457(b), you need to know what kind of plan it is.

The biggest mistake with 457(b) planning is assuming all plans work in the same way.

They do not.

Governmental 457(b) plans and non-governmental 457(b) plans can have very different planning implications.

The distinction can affect:

• whether rollover is available
• whether assets are held in trust
• whether assets may be exposed to employer creditors
• when distributions can be taken
• whether distributions can be deferred
• whether elections can be changed
• whether the plan can be transferred
• how beneficiaries receive benefits
• whether provider access is available abroad
• how the account fits retirement income planning

For someone living abroad, this distinction can be critical.

A governmental 457(b) may look more like other employer retirement plans in some respects.

A non-governmental 457(b) can operate more like deferred compensation and may have tighter distribution and rollover restrictions.

This matters because the wrong assumption can lead to poor planning.

For example:

• you may assume you can roll over the plan when you cannot
• you may assume distributions can be delayed when elections are already fixed
• you may assume the account is protected in the same way as other retirement accounts
• you may miss a required distribution
• you may create tax or cash flow issues by taking income at the wrong time
• you may leave a surviving spouse with difficult account access
• you may face foreign address or provider servicing issues

The first step in 457(b) planning is therefore simple.

Identify the plan type.

Only then can you review whether keeping, drawing, deferring, rolling over or restructuring makes sense.

This page is for general information only and does not constitute personalised financial, tax, legal, investment, pension, retirement, rollover, deferred compensation, 457(b), RMD, withholding, estate planning, US tax, local tax or currency advice.

457(b) plans, governmental 457(b) plans, non-governmental 457(b) plans, eligible deferred compensation plans, rollovers, distributions, deferral elections, RMDs, withholding, beneficiary forms, foreign address restrictions, investment options, fees, creditor exposure, local tax, currency and future residence depend on personal circumstances and may change.

US tax advice should be taken from a suitably qualified US tax adviser or CPA. Local tax, legal, pension, deferred compensation and estate planning advice should also be taken where relevant.

Financial planning should be coordinated with tax, legal, pension, investment, retirement and estate planning advice where appropriate.

Do not roll over, defer, withdraw from or restructure a 457(b) plan without reviewing tax, investment, distribution, creditor, plan rule and provider implications.

Investing involves risk. Retirement account, pension, deferred compensation and investment values can fall as well as rise, and you may get back less than you invest.

Currency movements can affect the value of retirement accounts, withdrawals, transfers, tax liabilities and future spending.