What is a 457 Retirement Plan?

A 457 retirement plan is a tax-advantaged retirement savings plan available to employees of state and local governments, as well as certain non-profit organizations. Similar to 401(k) plans in the private sector, 457 plans allow participants to contribute pre-tax dollars to their accounts, which are then invested and grow tax-deferred.

457 plans offer several key advantages:

* **Tax-deferred growth:** Earnings on investments in a 457 plan are not taxed until they are withdrawn in retirement. This tax-deferred growth can help participants accumulate a larger nest egg for retirement.
* **Lower contribution limits:** Contribution limits for 457 plans are higher than those for 401(k) plans, allowing participants to save more for their retirement.
* **Catch-up contributions:** Employees who are age 50 or older can make catch-up contributions to their 457 plans, which can help them save more for retirement.

457 plans also have some potential drawbacks:

* **Limited investment options:** Investment options for 457 plans are often more limited than those for 401(k) plans.
* **Early withdrawal penalties:** Withdrawals from a 457 plan before age 59½ are subject to a 10% penalty.
* **Required minimum distributions:** Participants in 457 plans are required to begin taking minimum distributions from their accounts at age 72.

Overall, 457 retirement plans can be a valuable tool for employees of state and local governments and non-profit organizations to save for their retirement. By taking advantage of the tax-deferred growth, higher contribution limits, and catch-up contributions, participants can accumulate a significant nest egg for their retirement years.

What is a 457 Retirement Plan?

Ever heard of a 457 retirement plan? If not, you’re not alone. These plans are specifically designed for employees of state and local governments, as well as certain tax-exempt organizations. The main goal? To help you save for your golden years. Let’s dive into the details and see how a 457 retirement plan can potentially benefit you.

Similar to 401(k) plans offered by many private sector employers, 457 plans allow you to sock away a portion of your hard-earned money on a pre-tax basis, reducing your current taxable income. But unlike 401(k) plans, 457 plans have no annual contribution limits—a major advantage if you’re looking to max out your retirement savings. However, once you turn 59½, annual catch-up contributions are permitted, providing you with an opportunity to play catch-up and boost your retirement nest egg.

457 plans also offer a choice of investment options, giving you the flexibility to tailor your portfolio to your individual risk tolerance and retirement goals. You can choose from a range of options, including stocks, bonds, mutual funds, and target-date funds that automatically adjust your asset allocation as you near retirement age. Plus, you can make changes to your investments as needed, giving you control over your retirement savings.

When it comes to withdrawals, 457 plans offer flexibility. Once you reach age 59½, you can tap into your retirement savings without facing the 10% early withdrawal penalty typically associated with other retirement accounts. However, if you retire before age 59½, you may have to pay income tax on any withdrawals you make, plus an additional 10% penalty. Keep in mind that you must start taking required minimum distributions (RMDs) from your 457 plan once you reach age 72, just like with other retirement accounts.

457 plans come with some potential drawbacks too. For instance, unlike 401(k) plans, 457 plans don’t offer employer matching contributions. Plus, 457 plans are subject to different rules and regulations than other retirement plans, so it’s wise to consult with a financial advisor to ensure you fully understand the ins and outs before making any decisions.

What is a 457 Retirement Plan?

Saving for retirement is important, and there are many different ways to do it. One option is a 457 retirement plan, which is a tax-advantaged savings plan specifically designed for government employees and certain non-profit organizations.

How 457 Plans Work

457 plans are similar to 401(k) plans in many ways. Contributions are made on a pre-tax basis, meaning they are deducted from your paycheck before taxes are calculated. This reduces your taxable income and can save you money on taxes now. The money in your 457 plan grows tax-deferred, meaning you won’t pay taxes on it until you withdraw it in retirement. This can help your savings grow faster over time.

There are some key differences between 457 plans and 401(k) plans. 457 plans have no annual contribution limits, meaning you can contribute as much as you want. However, there are limits on how much of your contributions can be made on a pre-tax basis. 457 plans also have different withdrawal rules than 401(k) plans. You can withdraw money from a 457 plan at any time, but you will pay taxes on the withdrawals if you do so before you reach age 59½. There are some exceptions to this rule, such as if you withdraw the money to pay for qualified expenses, such as medical expenses or the purchase of a first home.

**What is a 457 Retirement Plan?**

A 457 retirement plan is a tax-advantaged retirement savings plan designed specifically for employees of state and local governments and certain non-profit organizations. It’s similar to the popular 401(k) plan offered by many private-sector employers, but with some key differences.

**Eligibility for 457 Plans**

To be eligible for a 457 plan, you must meet certain requirements. First, you must be employed by a state or local government, a political subdivision such as a city or county, or a participating tax-exempt organization. These organizations include non-profit hospitals, schools, and religious organizations.

Secondly, you must be a “highly compensated employee” as defined by the state or local government or tax-exempt organization. What qualifies as “highly compensated” can vary depending on the organization, but generally includes employees in management or executive positions.

Finally, you must earn less than the annual maximum contribution limit set by the Internal Revenue Service (IRS) for 457 plans. For 2023, the limit is $22,500, with an additional catch-up contribution of $7,500 allowed for participants aged 50 or older.

**Key Benefits of 457 Plans**

457 plans offer several key benefits, including:

* Tax-deferred contributions: Contributions to a 457 plan are made pre-tax, meaning they are deducted from your paycheck before income taxes are calculated. This reduces your current taxable income and lowers your tax bill.
* Tax-free growth: The earnings on your 457 plan investments grow tax-free until you withdraw them in retirement. This allows your savings to accumulate more quickly and potentially generate higher returns over time.
* Flexible withdrawal options: Unlike other retirement accounts, 457 plans allow you to withdraw funds at any time without paying a penalty, even before you reach retirement age. However, you will pay income taxes on any withdrawals, and early withdrawals may be subject to a 10% federal tax penalty.
* Employer matching contributions: Some employers may offer matching contributions to your 457 plan, which can further boost your retirement savings.

What is a 457 Retirement Plan?

A 457 retirement plan is a tax-advantaged savings plan designed specifically for employees of state and local governments, as well as certain non-profit organizations. These plans allow participants to set aside money for their retirement on a pre-tax basis, offering significant tax benefits.

Benefits of 457 Plans

457 plans offer numerous benefits that can help participants save effectively for retirement.

Tax-Deferred Growth

Contributions to 457 plans are made on a pre-tax basis, meaning they reduce your current taxable income. Earnings on these contributions grow tax-deferred, allowing them to accumulate faster than in a taxable account. Upon retirement, you’ll pay income tax on the withdrawals, but this can be beneficial if you expect to be in a lower tax bracket at that time.

Potential Employer Contributions

Unlike 401(k) plans, employers are not required to make contributions to 457 plans. However, many employers do offer matching contributions or fixed-amount profit-sharing contributions. These contributions can significantly boost your retirement savings.

Wide Range of Investment Options

457 plans typically offer a wide range of investment options, including stocks, bonds, mutual funds, and target-date funds. This allows participants to tailor their investments to their individual risk tolerance and retirement goals.

Other Benefits

In addition to those mentioned above, 457 plans may also offer the following benefits:

• No age limits for contributions. Unlike traditional IRAs, which impose contribution limits once you reach age 72, there are no age limits for contributions to 457 plans.
• Catch-up contributions. Participants who are age 50 or older may be able to make additional catch-up contributions each year.
• Loan provisions. Some 457 plans allow participants to take out loans from their accounts, which can be useful for emergencies or unexpected expenses.

**What Is a 457 Retirement Plan?**

457 plans are tax-advantaged retirement savings plans offered by state and local governments, as well as certain tax-exempt organizations. They’re similar to 403(b) plans, but they have some unique features and limitations.

Limitations of 457 Plans

457 plans come with a few drawbacks that you should be aware of before investing:

457 plans have contribution limits. For 2023, the contribution limit is $22,500. This limit is lower than the contribution limits for 401(k) and 403(b) plans. Therefore, it may not be possible to save as much money for retirement in a 457 plan as in these other types of plans.

You may have to pay a 10% penalty if you withdraw money from a 457 plan before you reach age 59½. This penalty can be waived if you retire from your job at age 55 or older. However, you’ll still have to pay income taxes on the money you withdraw.

457 plans may not be as portable as other types of retirement plans. If you leave your job, you may not be able to roll over your 457 plan account to another type of retirement plan. That is because not all retirement plans accept rollovers from 457 plans.

457 plans may not be offered by all employers. If your employer does not offer a 457 plan, you will not be able to participate in one.

You may be subject to additional taxes if you make non-qualified withdrawals from a 457 plan. Non-qualified withdrawals are withdrawals that are not made for retirement purposes. The additional tax is 10% of the amount of the withdrawal. You’ll have to pay this tax in addition to the income taxes you would normally pay on the withdrawal.

Despite these limitations, 457 plans can be a valuable savings tool for state and local government employees and employees of certain tax-exempt organizations. If you are eligible to participate in a 457 plan, you should consider doing so.