Workplace retirement plans help you save
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 offered||401(k): Private companies||403(b): Schools, nonprofits||457: Government jobs, tax-exempt organizations|
|Annual contribution limits||401(k): $17,500||403(b): $17,500||457: $17,500|
|Catch up limit||401(k): $23,000||403(b): $23,000||457: up to $35,000*|
|Employer contributions||401(k): Yes||403(b): Yes||457: No|
|Funded with||401(k): pretax earnings||403(b): pretax earnings||457: pretax earnings|
|Earnings grow||401(k): tax-deferred||403(b): tax-deferred||457: tax-deferred|
|Can roll into IRA||401(k): yes||403(b): yes||457: 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.