What Not to Roll Over From NYC Deferred Comp
A 457 checklist for your retirement year

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You don't have to decide on your last day

Nothing about retiring forces money out of NYC Deferred Comp. The Plan says you "do not need to immediately contact us or withdraw your funds from the Plan upon severance from City service," and you can leave it there until required minimum distributions start. Those begin by April 1 of the year after the later of the year you turn 73 or the year you retire from City service.

The clock that does matter is the Plan's definition of leaving. Its distribution guide counts severance as retirement or being off City payroll for 45 days or more, and says it does not include leaves of absence "such as terminal leave." A payout or a rollover can't be processed until you have been severed for at least 45 days. So the 45 days count from when you come off payroll, not from the first day of terminal leave.

That gap is useful. It is the time to work through the six pieces below, because several of them change rules the moment they leave the Plan, and one of them can't be undone.

1. Pre-tax 457 money you might spend before 59½

This is the big one. Inside the Plan, pre-tax 457 money can be paid to you after you leave City service at any age with no 10% penalty. The IRS says it directly: an eligible state or local government 457 plan "isn't a qualified retirement plan and any distribution from such plan isn't subject to the 10% additional tax on early distributions."

The rule belongs to the plan, not to you. The Plan's withdrawals page puts it this way: pre-tax 457 money can be rolled into the NYCE IRA, another 457, a 401(k), a 403(b) or a retail IRA, "but, once rolled over, funds may become subject to a 10% early withdrawal penalty." In the Plan's own penalty table, the 457 row reads "No" at every age and the Traditional NYCE IRA row reads "Yes" until 59½.

Ordinary income tax applies either way. The difference is the extra 10% on what you take out early. The free 457 rollover calculator prices it on your own age and balance.

Ask yourself: how much do I expect to take from this account before 59½, and in which years?

2. Your Roth 457

Roth money in the 457 has its own rules, and they are friendlier than most people expect. A withdrawal is fully tax-free once you are 59½ and your first Roth contribution to the Plan was more than five years ago. Before that, the Plan says a Roth 457 withdrawal is "subject to all applicable taxes, but no 10% penalty." The tax falls only on the earnings part.

A Roth IRA works differently in three ways worth knowing before you move it:

• The penalty. The IRS charges a 10% additional tax on early distributions from Roth IRAs, on the part you have to include in income, unless an exception applies.
• The five-year clock. When you roll a Roth 457 into a Roth IRA, the IRS says the time the money spent in the Plan "does not count toward the 5-taxable-year period" for the Roth IRA. If you already opened a Roth IRA in an earlier year, that older start date is the one that counts.
• The order money comes out. This one cuts the other way. The Plan's guide says a Roth 457 withdrawal comes out as a proportional mix of contributions and earnings, while a Roth IRA pays out contributions first and earnings last.

Roth 457 money can only roll into another Roth account: a Roth 457, Roth 401(k), Roth 403(b) or Roth IRA.

Ask yourself: what year did I make my first Roth contribution to the Plan, and do I already have a Roth IRA open from an earlier year?

3. A loan you still owe

A Deferred Comp loan comes due when you leave. The Plan's loan guide says loans "are due and payable upon the expiration of the loan term or your severance from employment with the City, whichever occurs first." You can pay it off in full by certified check, bank check or money order; the Plan doesn't take partial payments.

If you don't, the balance is offset: it is subtracted from your account and reported to you as income on a Form 1099-R. The distribution guide says the offset happens automatically when you ask for a distribution, with tax withheld on the loan balance. The guide names a 10% penalty only for a 401(k) loan offset before 59½, not for the 457.

An offset can still be undone for tax purposes. Because it happened when you left the job, the IRS gives you until your tax-return due date, including extensions, to roll an amount equal to the offset into an IRA or another plan, instead of the usual 60 days. You need the cash to do it, the loan has to have been in good standing when you left, and the offset has to happen within a year of leaving. How the 457 loan offset works, step by step.

Ask yourself: what is my payoff amount, and which tax year will the offset land in?

4. Money in the 401(k) Special Rollover Account

Some members have a second account inside the City's 401(k) Plan built for pension money: the 401(k) Special Rollover Account. The Plan's fact sheet says it accepts only "federally tax-deferred pension funds (414(h) funds) and union annuity funds," such as a final pension payment or the balance of a pension loan.

The reason it exists is New York tax. Those pension contributions were already taxed by New York when you made them. The fact sheet says that when they come back out, they are subject to federal tax "but NOT New York State and New York City taxes if the participant resides anywhere in New York State." Growth on them is taxed by all three.

Wherever that money ends up, the proof matters more than the account. The Plan's own note: "Please retain your pension statement, with the rollover amount or final loan statement indicating the amount of the Basis." Without it, you or your tax preparer may not be able to show which dollars New York already taxed. The account sits in the 401(k) Plan, not the 457, so ask the Plan which penalty rules apply before you count on taking money from it before 59½. Take the tax side to a tax professional.

Ask yourself: do I have the pension statement that shows what went into this account?

5. What it costs now, next to what it would cost

Know the Plan's price before you compare anything to it. The Plan's fee page says the administrative charge is $20 a quarter and its funds carry an asset-based fee of 0.0375% a year, cut from 0.04% on January 1, 2026. Each fund also has its own expense ratio. For the year ending December 31, 2024 (including the 0.04% fee in force then), the Plan lists the Equity Index Fund at 0.04%, or $0.40 a year per $1,000; the Bond Index Fund at 0.06%; the International Equity Index Fund at 0.07%; and the Stable Income Fund at 0.25%.

Loans add a $50 origination fee and $8.75 a quarter while they are open. The self-directed brokerage option costs $12.50 a quarter. The Plan's own advice is to "compare all fees before making any rollover decisions."

Ask yourself: what would the other account cost me a year, in dollars, all in?

6. The door that only swings one way

Money you roll out of the 457 can't come back in as 457 money. The Plan's distribution guide says the 457 Plan accepts rollovers "from other 457 plans only." The Plan will take money back into the NYCE IRA, which offers the same funds and the same cost structure. But the NYCE IRA is an IRA: in the Plan's penalty table it carries the 10% penalty until 59½, the same as any other IRA.

The IRS closes the same door from the other side. Even where a 457 plan does accept money from an IRA, Topic 558 says any distribution from those rolled-in dollars "would be subject to the 10% additional tax." Moving the money back would bring back the Plan's low fees. It would not bring back the penalty-free 457 rule.

Ask yourself: am I sure I won't need this money penalty-free before 59½?

All or nothing isn't the only choice

Some members do move part or all of their account, for reasons this checklist doesn't cover: some want investments the Plan doesn't offer, some want everything in one place, and some have an estate plan built around an IRA. Those decisions belong to your whole plan, not to this page.

The mechanics allow a split. The Plan offers partial withdrawals of at least $1,000, and a direct rollover has no tax withheld. If you want part paid to you and part rolled over, the Plan needs a separate distribution form for each. Any amount that could have been rolled over but is paid to you instead has 20% held back for federal income tax.

Your 457 checklist for the retirement year

1. Write down your severance date: your last day on payroll, not the first day of terminal leave. The first payout or rollover can't happen until 45 days after it.
2. Pull your latest statement and note the balance in each piece: pre-tax 457, Roth 457, pre-tax 401(k), Roth 401(k), the 401(k) Special Rollover Account, and any loan.
3. Find the year of your first Roth contribution to the Plan, and whether you already have a Roth IRA from an earlier year.
4. Get your loan payoff amount and decide between paying it off and an offset before you send a distribution form. Note which tax year it lands in.
5. Estimate what you'll spend from these accounts before 59½, year by year.
6. Plan for withholding on anything paid to you: 20% federal on an eligible payout, none on a direct rollover, and a separate form for each.
7. File away the pension statement that shows what went into the Special Rollover Account.
8. Price any new account in dollars a year, next to the Plan's $20 a quarter and 0.0375%.
9. Mark your required minimum distribution date: April 1 of the year after the later of the year you turn 73 or the year you retire.

Common questions

Do I have to roll over NYC Deferred Comp when I retire?

No. The Plan lets retired participants keep their money in it, with the same funds and fees as active employees, until required minimum distributions begin. You can take payments straight from the Plan at any age after you leave City service.

Is rolling into the NYCE IRA the same as leaving money in the 457?

No. The NYCE IRA uses the same funds and cost structure as the Plan, but it is an IRA, and the Plan's own penalty table shows the Traditional NYCE IRA with a 10% early withdrawal penalty until 59½. The 457 has none at any age once you have left City service.

Can I roll my Roth 457 into a Roth IRA?

Yes, and only into a Roth account. Check two things first: a Roth IRA withdrawal before 59½ can carry a 10% additional tax that the Roth 457 doesn't, and the years in the Plan don't count toward the Roth IRA's own five-year clock unless you already had a Roth IRA open.

What happens to my Deferred Comp loan if I retire?

It comes due when you leave City service. You can pay it off in full, or it is offset against your account and reported as income for that year. Because the offset comes from leaving the job, you have until your tax-return due date, with extensions, to roll an equal amount into an IRA or plan and keep it out of income.

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