Can I take distributions from a defined benefit pension from a former employer while making tax deferred contributions to a 457 plan at my current employer?
I am 54 years old and wish to retire early to travel with my wife. I have a pension plan from a university I worked at and terminated my employment 15 years ago. I can start drawing pension payments any time after 50 years of age. Currently, and for the past 15 years, I have worked for a state agency. I plan to retire at 56 years of age. It will be three or four years before I can access IRA funds. I have a 457 fund that I can access upon termination of my current employment with the state agency without a penalty. I would like to increase the amount in my 457 plan by maxing out contributions while I am still employed, and then use the 457 to bridge the time from retirement until 59.5 years of age when I can access other funds. From a tax and legal perspective, can I draw pension retirement checks and simultaneously contribute tax free to a 457 plan?
Yes, you can take distributions from your pension from your old employer, while also making contributions to your current employer. But do keep an eye out for how that pension will affect your tax situation. It could possibly move you into a new tax bracket. If you have options of how that pension is paid out, be mindful of this when choosing an payout option. Typically that is a one-time decision, no do overs.
The short answer to your question is yes. As long as the former employer allows you to begin taking this pension, it is independent from your current employer’s retirement plan and your contributions to it. By taking the pension, it will give you additional cash flow that will allow you to maximize your contributions to your present retirement plan.
Best wishes on your planned early retirement.
There can be a problem if the university and the state agency are both the same state employers. If not, no problem. It's not uncommon for some of us to draw a pension because we are given no choice but to start drawing certain defined benefit pensions at a certain age, and then find work and have contributions to retirement plans and social security from our new job's wages.
We would love to be able to help you! However, to get started on the right foot, we have many ?’s to ask you first. We work very much like a doctor would. Keep in mind you just don’t walk into the Doc’s office and immediately get a prescription.
In fact we always say that prescription without diagnosis is malpractice.
So let’s get started…..
- You can take the money from the pension and the 457 plan at same time. However there is much more to talk about here. Can we talk live to discuss your plan.
Brett M. Sause, LUTCF®, LTCP®, CLTC®, RFC®, LACP®, FSCP®
Principal & CEO