When Would A 457 Account Affect Your Retirement?
If you’re a government employee, you may have access to a 457-retirement account. A 457 plan is a type of tax-advantaged retirement account that is available to employees of state and local governments, as well as certain non-profit organizations.
Let’s take a closer look.
What is a 457-retirement account?
A 457 plan is like a 401(k) or 403(b) plan, but it is designed specifically for government and non-profit employees. Like a 401(k), a 457 plan allows you to make pre-tax contributions, which can help lower your taxable income. The money you contribute to the plan grows tax-free until you withdraw it in retirement. Additionally, like a 401(k), some employers offer a matching contribution, which can help boost your savings.
One key advantage of a 457 plan is that it allows you to contribute more to your retirement savings than a 401(k) or 403(b). In 2023, the maximum amount you can contribute to a 457 plan is $22,500. However, if you are 50 or will be 50 by end of the year, you can contribute a catch-up of an additional $7500.
Another advantage of a 457 plan is that you may be able to withdraw money penalty-free before you reach age 59 and a half. This is known as the “substantially equal periodic payments” provision, and it allows you to receive a stream of payments over your lifetime, based on your life expectancy.
What are the differences between a 457 and a 401(k) or 403(b)?
While a 457 plan shares many similarities with a 401(k) or 403(b), there are a few key differences. For example, a 457 plan does not have an early withdrawal penalty if you leave your job before age 59 and a half. Additionally, you can contribute the maximum amount to both a 401(k) or 403(b) and a 457 plan in the same year, which can help boost your savings.
However, one key disadvantage of a 457 plan is that it may not be as well-known or widely available as a 401(k) or 403(b). Additionally, some 457 plans may have higher fees or less investment options than other retirement plans.
Is a 457-retirement account right for you?
If you are a government or non-profit employee and have access to a 457 plan, it may be a good option for your retirement savings. However, like any retirement plan, it’s important to carefully consider the fees, investment options, and contribution limits before deciding to contribute.