 | | | 457(b) Plans: Governing Retirement | | Named for a section of the Internal Revenue Code, 457(b) plans help government employees add to their retirement savings in much the same way as 401(k) plans offer retirement help to private-sector employees. | |
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Until 2001, 457(b)s were governed by different contribution and eligibility rules than 401(k)s. That changed with the passage of the Economic Growth and Tax Relief Act of 2001, which put the 457(b) on similar footing as the 401(k).
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As such, 457(b)s now have the same annual pre-tax contribution limit. They also have the same catch-up contribution provisions as the 401(k) (however, the 457(b) does have a unique provision that allows employees who are within three years of normal retirement age to contribute another full deferral limit into their plans for that year).
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The main difference between the two plans is that 457(b)s aren't classified as qualified plans, and therefore aren't bound by the same rollover and distribution rules as the 401(k). As a result, 457(b)s only can accept rollovers from other 457 plans. A 401(k) can accept rollovers from a host of retirement vehicles, including 401(k)s, IRAs, 403(b)s and 457s.
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Another difference is that 457(b) participants can take regular distributions from a 457(b) as soon as they retire or leave their current employer, regardless of whether they have reached age 59 1/2. The 10% early withdrawal penalty does not apply to these plans under any circumstances, although all distributions are still taxed as ordinary income.
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| 457(b) Plan Highlights |
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Contribution limits:
Pretax contributions only. For , limits increase to $ or 100% of compensation.
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Loans: May be allowed. |
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Early withdrawals: There is no 10% penalty for withdrawal before the age of 59 1/2. Distribution amounts, though, are subject to income tax. |
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Worth knowing: During the three years preceding normal retirement age, you may be able to contribute additional pretax dollars to your 457(b) plan under a "catch-up" rule. You also can add additional dollars under a separate catch-up option if you are at least 50 years old. Speak to your Human Resources representative or your plan administrator for details. |
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