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What happens to your 457(b) when you leave County of Monterey service

Public employees

Overview CalPERS and your other savings CalSTRS and 403(b) options County of Monterey 457(b) District 403(b) vendors 457(b) rollover options 403(b) rollover options Income planning

Retiring from the county? Sequence the 457(b) before you sign anything.

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Leaving county service does not force a decision about the 457(b). Retiring early makes one worth getting right.

County of Monterey employees contribute to the Monterey County Deferred Compensation Plan, a governmental 457(b), alongside their CalPERS pension. When you leave county service, whether to retire, to move to another employer, or to change careers, the 457(b) balance has several destinations, and the plan's own documents and distribution forms decide which are available to you. This page explains the choices in plain terms, the one trade-off that catches early retirees, and how the account fits with CalPERS. The plan's documents govern; confirm anything here against them.

Next Wave Options is not affiliated with the County of Monterey, its Deferred Compensation Plan or CalPERS. We explain options and link to the official sources; we never suggest leaving a public plan.

What kind of plan it is, and why that matters

The county's plan is a governmental 457(b): assets are held in trust for participants, and balances can be rolled over to an IRA or another eligible plan when you leave service. The IRS describes the plan type on its 457(b) deferred compensation plans page. The feature that sets it apart from a 401(k) or 403(b) is that money which originated in the 457(b) is generally not subject to the additional 10 percent tax on distributions before 59½; ordinary income tax applies, but no penalty. That is a meaningful advantage for a county employee who retires at 55 or 58 with a CalPERS pension and wants to draw on savings before 59½.

Your options when you leave

  1. Leave it in the plan. Balances above the plan's minimum can usually stay, tax-deferred, in the plan's investment options, with penalty-free access to 457(b)-sourced money at any age. No new contributions. Check the plan's fees and its rules for former employees.
  2. Take payments from the plan. Most governmental 457(b) plans allow partial withdrawals, periodic payments or a lump sum after separation; the distribution form lists what the county's plan offers. Payments are ordinary income in the year received, and a large lump sum can push you into a higher bracket.
  3. Transfer it to another governmental 457(b) if you move to another public employer whose plan accepts transfers. The money keeps its 457(b) treatment.
  4. Transfer it to a 401(k) or 403(b) at a new employer, if that plan accepts it. The receiving plan must track the 457(b) money separately, and it generally takes on the receiving plan's rules, including the additional 10 percent tax before 59½ subject to that plan's exceptions.
  5. Roll it into an IRA. Tax-deferred as a direct rollover, with a wider choice of products and, sometimes, lower costs. The money becomes IRA money: the additional 10 percent tax applies before 59½ unless an IRA exception applies, creditor protection follows state law, and the once-per-12-months rule governs later 60-day rollovers. Our 457(b) rollover options page explains this trade-off in detail.

If you are under 59½, write down what a rollover to an IRA would cost you in access before you sign the form. Leaving the money in the plan, or taking payments from it, keeps the 457(b) advantage. Rolling it out is not wrong; it should be a decision, not a default, and no one at an insurance agency, including us, should be the one making it for you.

Taxes and required distributions

Pre-tax 457(b) money is taxed as ordinary income when distributed. A direct rollover to an IRA or another eligible plan is not taxed at the time and is tax-deferred, not tax-free. If the plan offers a Roth 457(b) option, Roth balances follow Roth rules and can roll to a Roth IRA. Required minimum distributions apply at the IRS age, with the schedule on the IRS RMD page. The interaction of a lump sum, your pension and your Social Security in a single tax year is exactly the kind of question that belongs with a tax professional, and we will say so when you reach it.

Sequencing the 457(b) with CalPERS

For most county retirees the CalPERS pension is the foundation and the 457(b) is the flexible layer on top. A common sequence for someone retiring before 59½ is to draw the 457(b) for the bridge years while the pension covers essentials and Social Security, where it applies, is delayed to raise the eventual benefit; the income worksheet shows whether that works for your numbers. Where a gap remains after the pension and Social Security, part of the 457(b) might reasonably be assigned to a contract that pays for life, and that contract's surrender charges, withdrawal limits and, for indexed contracts, caps have to be on the page before its benefit is. Because 457(b) money already has penalty-free access, moving it into an annuity inside an IRA gives up something real; the trade has to be stated plainly, and it is rarely right for the whole balance.

Before you sign the distribution form

  • Ask the plan for its distribution options for former employees, including partial and periodic payments, and its fee schedule.
  • If you are under 59½, note what each option means for access to the money without the additional tax.
  • If you roll over, ask for a direct rollover; open the receiving account first.
  • Check for an outstanding plan loan and update the beneficiary designation on every account.
  • Read the CalPERS retirement option election with the same care; both decisions shape a survivor's income.

Questions county employees ask

Usually not. Balances above the plan's minimum can generally stay in the plan, tax-deferred, with penalty-free access to 457(b)-sourced money at any age. Leaving it is one of the options and often a reasonable one; the plan's documents state the rules for former employees.

Generally yes for money that originated in the governmental 457(b): ordinary income tax applies, but not the additional 10 percent tax. Money rolled into the plan from other plan types may keep those plans' rules. The plan's distribution form lists the options.

Penalty-free access before 59½. In an IRA the money follows IRA rules, including the additional 10 percent tax on early withdrawals unless an exception applies. You may gain product choice or lower costs; compare both before deciding.

To another governmental 457(b), yes, keeping its treatment. To a 401(k) or 403(b) that accepts it, yes, but the money generally takes on that plan's rules. Ask the receiving plan for its instructions first.

A direct rollover to a traditional IRA or eligible plan is not taxed at the time; the money stays tax-deferred and is taxed on withdrawal. Taking the cash is ordinary income in the year received, with mandatory withholding from the plan.

Rarely, and never the whole balance. Where the income worksheet shows a gap after CalPERS and Social Security, part of the account might reasonably fund a contract that pays for life, with its surrender charges, withdrawal limits and caps disclosed first; doing so through an IRA gives up the 457(b)'s penalty-free access.

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Reviewed by Roberto Morales, California Insurance License #0G97165. Next Wave Options is licensed for life and annuity products only and does not provide investment, tax or legal advice.