pricespector

A 457 is tax-deferred compensation (income). As such, you will have to pay income tax on any withdrawals. The 20% you speak of is a "withholding" rate only. This means that it is an estimated tax liability.

If you end up oweing less than that when you file your 2009 tax return next year, then you will be refunded the difference. It is just like when taxes were withheld from your pay checks.

You won't be able to avoid paying these taxes when you withdraw the money, and this includes rolling the amount over into a Roth IRA. Even though a Roth is tax free, the amount you rollover would be considered a withdrawal for income tax purposes.

The 20% withholding rate should be waived for the transfer, but you would still receive a 1099 at the end of the tax year for the amount rolled over and you would owe income tax on that amount.