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00:00 Intro
00:34 What is a 457b
01:00 How 457b Accounts Help You Save
03:08 Contribution Limits
05:48 Withdrawal Features
06:35 Are there ROTH 457b
06:55 Are you required to take RMDs from a 457?
07:11 How are distributions taxed?
07:59 Can you rollover a 457

A 457 b is a tax advantaged retirement savings plan.

In some ways its pretty similar to the more common 401k plan or even TSP or 403b plans

401k plans are much more likely to be offered at a private for profit company

TSPs are usually offered to employees of the federal government

457bs and 403bs are usually offered to employees of non profit organizations, local and municipal government employees, or employees of public safety organizations such as law enforcement or firefighters….(read more)

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A 457b retirement plan, often known as a deferred compensation plan, is designed for employees of local governments and certain tax-exempt organizations. Similar to a 401k plan, a 457b plan allows employees to save for retirement on a tax-advantaged basis. If you’re new to the concept of retirement plans or simply want to understand 457b plans better, this article is here to break it down for you.

First and foremost, let’s highlight the key features of a 457b plan. Employees who participate in this plan can contribute a portion of their salary into the account, either on a pre-tax or after-tax basis. The contributions are then invested, allowing them to grow tax-free until withdrawal. Generally, this type of retirement plan offers a diverse range of investment options, much like a traditional brokerage account.

One of the major benefits of a 457b plan is its flexibility. Unlike a 401k plan, there is no penalty for early withdrawals from a 457b account, even before the age of 59 ½. However, you will still be subject to income taxes on the withdrawal amount. This feature can be particularly useful if you retire early or encounter unexpected financial challenges.

Another advantage of 457b plans is the higher contribution limits compared to other retirement plans. In 2021, the maximum annual contribution limit for a 457b plan is $19,500. However, participants who are within three years of their plan’s designated retirement age may be eligible for a “catch-up” provision, allowing them to contribute up to double the regular limit. It’s important to note that these limits can change each year, so staying updated with the current regulations is crucial.

Additionally, if you have unused contribution allowances from previous years, a 457b plan allows you to make “catch-up” contributions without penalty. This provision enables employees to make up for previous years of underutilized savings opportunity, which can be a significant advantage when nearing retirement.

When it comes to taxes, a 457b plan provides a distinct benefit. Since contributions to the plan are made on a pre-tax basis, your taxable income is reduced by the amount you contribute. Consequently, you’ll pay less in income taxes, at least until you start withdrawing from the account in retirement.

It’s important to mention that unlike a traditional retirement plan, such as a 401k, 457b withdrawals are subject to ordinary income taxes. However, if you wait until retirement age—typically 59 ½ or later—to take distributions, you may be in a lower tax bracket, resulting in potentially lower tax liabilities.

Lastly, it’s worth noting that 457b plans are not exclusive to the public sector. Private nonprofit organizations may also offer a similar plan known as a “457f” plan. While the general principles and benefits remain mostly the same, there might be some nuanced differences between the two.

In conclusion, a 457b retirement plan offers employees an opportunity to save for retirement while enjoying various tax advantages. Offering higher contribution limits, flexible withdrawal options, and potential catch-up provisions, it presents an attractive option for individuals looking to secure their financial future. Whether you’re a beginner or an experienced investor, understanding the fundamentals of a 457b plan can go a long way in planning for a comfortable retirement.