Contrary to other retirement accounts, 457(b) investments grow tax-deferred until you withdraw them; however, you are subject to regular income taxes when taking them out of retirement.
These plans are often employed by government workers and offer various investment options. Usually more flexible than 403(b) plans, they allow early withdrawals without penalty in cases of unexpected emergencies.
Transfer to a new employer’s plan
Considerations should be given to several aspects when transferring your 457b from one employer’s plan to another, including your financial goals and fees charged by that plan; in addition, make sure the investment options and withdrawal rules in your prospective plan meet with your approval.
Most governmental 457(b) plans offer an assortment of mutual funds and annuities that are tax-deferred until withdrawal, meaning earnings won’t be taxed until you withdraw them. Furthermore, you can combine a 457(b) plan with either a traditional or Roth IRA to increase retirement savings even further.
457(b) plans differ from other retirement accounts in that you can withdraw your funds without incurring a penalty in times of financial difficulty, including unexpected medical expenses, job loss, property losses, eviction/foreclosure proceedings and funeral costs. The penalty exemption was designed specifically to support police officers and firefighters. For private tax-exempt 457(b) plans however, rollovers typically aren’t permitted but you can still move them into an IRA account.
Roll it over into an IRA
If you are leaving a public employer, it may be possible to move funds from your 457(b) into an individual retirement account; however, these transfers could incur income taxes and an early withdrawal penalty of 10% should they occur prior to reaching age 59.5.
Certain plans also offer catch-up contributions, enabling employees to contribute up to twice the yearly limit as soon as they near retirement age. This feature can be particularly helpful.
But unlike IRAs, 457(b) accounts don’t typically offer as many investment choices and can be more difficult to manage, leading many people to opt for an IRA instead. According to Scheil, IRAs offer easier management as well as greater estate planning flexibility – but before making any decisions it is always wise to consult a financial professional first and learn which options may work for your unique circumstances.
Withdraw it penalty-free
A 457(b) plan is an employee retirement savings account available exclusively to government and nonprofit employees. Like its 401(k) and 403(b) counterparts, this retirement account allows tax-deferred dollars to be invested into mutual funds – as well as providing asset protection against your employer’s creditors – making it ideal for saving for retirement. Withdrawals prior to reaching age 59 1/2 can incur tax penalties.
Contribution limits for 457(b)s are similar to 401(k) or 403(b), reaching up to $22,500 by 2023. You may also make additional “catch-up” contributions once you turn 50; depending on the plan in place at your employer. Regardless of which option you select, it’s essential that you assess your personal goals and consult with a financial expert prior to making decisions – they could offer helpful suggestions on the best ways to save for retirement.
Withdraw it tax-free
Public-sector employees typically have part of their pay automatically deducted and put into a 457(b) retirement account each time they get paid, where it can be invested tax-deferred until retirement and withdrawal; distributions at this time may be subject to federal and, sometimes state income taxes. While this method provides great retirement savings benefits, accessing this money may be restricted due to certain restrictions and rules.
The main limitation of 457(b) plans is that withdrawals are usually only permitted in an emergency – such as job loss, spouse death or financial hardship. Furthermore, 457(b) plans tend to lock away money more securely than other retirement accounts – so if you cannot withdraw it when needed you must either move it into another employer plan or roll over into an IRA; any transfer into an IRA won’t incur taxes but must occur prior to age 59 1/2 in order to avoid an early withdrawal penalty of 10%.
