Workplace retirement plans help you save

457(b) plans

Plans like the 457(b) are offered to state and local government workers and to employees of some tax-exempt organizations such as universities and unions. Like other employer savings plans, 457(b)s are funded with pretax earnings, and assets grow tax-deferred.

Workplace retirement accounts: How they stack up

Where offered401(k): Private companies403(b): Schools, nonprofits457: Government jobs, tax-exempt organizations
Annual contribution limits401(k): $17,500403(b): $17,500457: $17,500
Catch up limit401(k): $23,000403(b): $23,000457: up to $35,000*
Employer contributions401(k): Yes403(b): Yes457: No
Funded with401(k): pretax earnings403(b): pretax earnings457: pretax earnings
Earnings grow401(k): tax-deferred403(b): tax-deferred457: tax-deferred
Can roll into IRA401(k): yes403(b): yes457: depends on plan

*Certain eligibility requirements apply.

Individuals must start withdrawing funds by age 70 1/2, and there's a 10 percent penalty for early withdrawals taken before you're 59 1/2. That said, you can often avoid the early withdrawal penalty with a 457 because the fee doesn't apply to someone retiring from a governmental job, even if they're not yet 59 1/2. Ditto if assets are tapped in the event of extreme financial hardship and unforeseen emergencies.

In 2014, savings limits for 457s max out at $17,500 per person or $23,000 for those over 50. However, 457 plans also come with an extra feature to help older workers save more. Under the so-called "double catch up" provision, someone within three years of retirement can stash up to $35,000 in 2014 if they've under-contributed to a 457 in the past. And if your employer offers both plans, you can fully fund both a 457 and a 403(b).

Since 2002, government workers have been allowed to roll 457 assets into an IRA, or to another workplace retirement account such as a 401(k) if that new employer plan allows it. But 457s for tax-exempt organizations can't be rolled over.


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