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Tax-Deferred Contributions
Participants can make pre-tax contributions to their 457 retirement plans, reducing their taxable income in the year of contribution. This allows for potential immediate tax savings.
No Required Minimum Distributions (RMDs) at 70½
Unlike other retirement plans, 457(b) plans do not require participants to take required minimum distributions (RMDs) once they reach the age of 70½, as long as they are still employed.
No 10% Early Withdrawal Penalty
457(b) plans do not impose the 10% early withdrawal penalty typically associated with other retirement plans if the participant separates from service, regardless of age. This provides flexibility for early retirees.
Portability
Participants can take their 457 retirement plan with them if they change jobs or employers, offering continuity in retirement savings.
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457 Plans provide a way for eligible employees to save for retirement
While enjoying potential tax benefits
457(b) Plan
Eligibility
Available to employees of state and local governments and certain tax-exempt organizations.
Contributions
Participants can make pre-tax contributions to the plan, reducing their taxable income.
Contribution Limits
As of 2023, participants can contribute up to $22,500 annually (or $30,000 if age 50 or older) to a 457(b) plan. Some plans allow for additional catch-up contributions in the three years leading up to the normal retirement age.
Catch-Up Contributions
Participants within three years of the plan's normal retirement age may be eligible for special catch-up contributions, allowing them to contribute more than the standard limit.
Withdrawals
Withdrawals from a 457(b) plan are generally subject to ordinary income tax. However, early withdrawals (before age 59½) may be subject to a 10% penalty unless an exception applies.
Rollovers
Participants may be able to roll over funds from a 457(b) plan to another eligible retirement account, such as an IRA or another employer's retirement plan.
No 10% Early Withdrawal Penalty
One notable feature is that 457(b) plans do not impose the 10% early withdrawal penalty typically associated with other retirement plans if the participant separates from service, regardless of age.
457(f) Plan
Eligibility
Typically used by certain non-profit organizations and governmental entities for high-level executives.
Contributions
Contributions may come from the employer or the employee, and they can be subject to various restrictions.
Contribution Limits
There are no specific contribution limits set by the IRS for 457(f) plans. Contributions are typically determined by the plan agreement.
Vesting Schedule
Employer contributions to 457(f) plans may be subject to a vesting schedule, determining when employees gain full ownership of the contributed funds.
Taxation
Contributions to a 457(f) plan are not tax-deferred, and they are subject to income tax in the year they are made.
Distribution Restrictions
Distributions from a 457(f) plan are typically subject to restrictions outlined in the plan agreement. Common restrictions include tying distributions to a specific age or the occurrence of a predetermined event.
Rollovers
Rollovers from a 457(f) plan to another eligible retirement account are generally not permitted due to the unique nature of these plans.
It's important to note that specific rules and features of 457 plans can vary, and any changes in tax laws may affect the information provided. Employees should review the terms of their specific plan and consult with their employer's benefits department or Book Free Online Consultation with us for personalized guidance.
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