Can I Trade a 457 Investment for Gold?
Unlike an IRA or certain 401(k) and similar plans that allow you to choose your investments, funds in a 457 plan are invested for you by the plan administrator. These investment plans are not self-directed. Therefore, you cannot trade your investment for gold within the plan. In some circumstances, however, you can withdraw funds from a 457 plan without a federal tax penalty, subsequently investing in whatever you choose.
457 plans are retirement plans available to you as a public service employee as an optional addition to your employer's other pension plans. These plans are similar to 401(k) plans in that they offer automatic deductions from your wages, lowering your taxable income by the amounts withdrawn. The taxes on money in your 457 plan are then deferred until you withdraw them in retirement.
Limitations and Advantages of 457 Plans
Like 401(k) plans, 457 plans are managed investment plans, but they typically offer fewer investment options within the plan. In some 457 plans, an annuity is the only available investment option. One notable difference between a 457 and a 401(k) is that in most circumstances the 457 does not have an early withdrawal penalty if you leave the job that offers the 457 option. You can leave your savings in the plan until retirement or withdraw the money, paying taxes on the withdrawal as current income. In some instances, when you withdraw money from a 457 plan you will be charged an early withdrawal fee by the plan administrator. This is particularly the case with 457 plans that are invested in annuities.
If you are leaving the employer offering the 457, any funds you keep in the plan continue to earn income tax-free until you withdraw them at retirement. Although in most circumstances there is no federal tax penalty for withdrawals from a 457 plan when you leave the employer offering it, if you have previously rolled over funds from a 401(k) or 403(k) into your 457 plan, you must roll these funds back into another 401(k) or 403(k). Otherwise, when you withdraw these funds from the 457 plan, they become subject to the 10 percent tax penalty for early withdrawals. Similarly, funds withdrawn from your current employer's 457 plan, rolled over into a 401(k), IRA or other non-457 plan and subsequently withdrawn from the plan are subject to the 10 percent early withdrawal penalty.
Investments After Withdrawal
Nothing prevents you from investing in gold or any other investment with the money you withdraw from a 457 plan. If you reinvest the funds in a self-directed 401(k), IRA or another self-directed plan within 60 days of withdrawal, you can then invest in one or more exchange-traded funds specializing in gold and obtain the same tax-deferral advantages in the new plan available in the 457 plan.
I am a retired Registered Investment Advisor with 12 years experience as head of an investment management firm. I also have a Ph.D. in English and have written more than 4,000 articles for regional and national publications.