A 457 Retirement Plan Has 6 Pertinent Things You Should Know About
A 457 retirement plan offers employees of state governments, subdivisions of state governments or certain eligible key employees of non-profit organizations to save for their retirement now and pay taxes later by contributing a portion of their salaries to the plan.
I'm gonna touch on 6 things about the plan which I think is pertinent for you to know if you're participating in this plan.
1. How Much You Can contribute on a Tax-Deferred Basis
You may contribute the lesser of $15,500 or 100% of compensation.
If you're eligible for catch-up contribution, then you can contribute an additional $5,000 to make a total of $20,500.
2. How Are The Contributions Invested
The money you contribute is invested at your direction in one or more of a variety of investment options offered by the plan.
Many 457 plans offer both fixed and variable investment options.
The fixed options which are through bank and insurance company products guarantee principal and interest.
The variable options which are through insurance company products, bank products or mutual funds provide "variable" returns, which are not guaranteed.
Your employer determines the investment options available to you and the options may change from time to time.
3. When You Can Withdraw The Money You Have In Your 457 Retirement Plan
You can withdraw the money upon:
- Your retirement
- Your encountering of emergency
- Reaching the age of 70
- Termination of service
- Your death
Withdrawals are subject to ordinary income taxes.
4. When You Are Required To Withdraw Your Money
You begin to receive benefit payments from your account the later of April 1 of the calendar year following the calendar year in which you:
- Reach the age 70, or
- Separate from service with your employer who sponsors your plan
If you fail to begin withdrawing as is required, it would subject you to IRS penalties equal to 50% of the amount that should have been withdrawn but wasn't.
5. If You Leave Your Current Employer
You may:
- Leave your money invested in the 457 plan until your required distribution date
- Rollover your plan into your new employer's eligible qualified plan (401k, 403(b), or 457),if your new employer's plan allows for this rollover
- Withdraw your money, subject to withdrawal charges and/or fees. Also distributions are taxable and penalties may apply
- Under certain circumstances you may roll your vested account balance into an IRA (individual retirement account) subject to withdrawal charges and/or fees.
6. If You Die
Benefits payable upon your death, if any, depend on the allocation of your investment options.
Group fixed and variable deferred annuity
It depends on your age at death and whether or not your annuity payments have started.
Usually, at your death, the money invested will be paid to your designated beneficiary according to the death benefit provisions in the annuity contract.
Mutual funds
The account value as of the date of death will be paid to your designated beneficiary.
All death benefits will be paid in accordance with the payout method you have selected.
If you die before selecting a payout method, your beneficiary will be allowed to select one for the distribution of your remaining account value.
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