retirement

Know your retirement plan

When you retire, the money you withdraw from the plan is taxed as ordinary income. With few exceptions, if you try to take a withdrawal before age 59 ½, you'll have to pay a 10 percent early withdrawal penalty. Some exceptions include "hardship" withdrawals, which waive the 10 percent penalty -- but you must use the money for purchasing your first home, higher education expenses, expenses on sudden disability and payments to prevent eviction or foreclosure. Keep in mind that you will always be taxed on the withdrawals you make.

For the most part, 403b plans work the same way as a 401(k) plan, but the main difference is that 403(b) plans are only available to employees of tax-exempt organizations or nonprofits, such as schools or religious groups. 403b plans have been around for more than 50 years, but only recently have they gained the same federal protections as 401(k) plans.

A 457 plan is available to state and local government employees and can also be offered by certain nonprofit organizations. This plan, too, works the same way as a 401(k) plan, but there are some differences in contribution limits and early withdrawals. Catch-up contributions for people age 50 or older are higher than 457 plans. If your employer also offers a 403(b) plan, you can still contribute to your 457 and invest the maximum in both plans. (Full page of contribution limits -- by year -- to be updated yearly). And unlike 401(k) and 403(b) plans, you can avoid paying early withdrawal penalties if you're under 59 ½, as long as you are retiring from a government job.

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