What is a 457(b) plan?
A 457(b) plan is a tax-deferred (pre-tax) retirement savings plan made available to employees of governmental and certain non-profit organizations. Contributions to the plan are invested in mutual funds, bond funds, or other investment vehicles and grow tax free until withdrawn.
You are limited to the amount you may contribute to the 457(b) plan each year. Generally, you may contribute up to $20,500* per year. However, various Catch-up options may allow you to contribute more than $20,500*. If you are over age 50 you may contribute an additional $6,500*. Or there is a catch-up option available to some employees entering their final 3 years of employment prior to attaining normal retirement age which may allow for up to $20,500* additional to be contributed.
Your employer may also elect to make 457(b) contributions on your behalf. But your and your employer contributions may not exceed the $20,500* limit (or more if catch-up eligible).
The following are events that will allow you to withdraw funds from your account and either receive the money directly or rollover the money to a different retirement plan:
- Termination of employment from your current employer
- Unforeseeable emergency
Direct withdrawals may generally be made in the form of a lump sum distribution or in an annuity payment.
Loans may also be taken from your 457(b) plan. Consult with your advisor for additional details.
You may contribute to both the 457(b) and 403(b) plans concurrently. Therefore, if you desire to maximize your tax deferred savings opportunities you may wish to contribute to both plans. Each plan has separate $20,500* base contribution limitations (which may be higher if you qualify for a catch-up provision).