§457(b) / Roth §457(b) Governmental Plan Accounts
Traditional governmental §457(b) plans are tax-advantaged deferred compensation arrangements designed for employees of public educational institutions and governmental agencies. By regularly deferring a portion of your compensation to a §457(b) account, you have a convenient means to lower your current taxable income while you work toward building your financial future.
Since governmental §457(b) accounts are not subject to a 10% premature withdrawal penalty, early retirees may have more flexibility to bridge the income gap between the time they retire and the time they are eligible for social security benefits.
Plus, if you work for a school, hospital or library, you may have the opportunity to contribute to a §457(b) account in addition to a §403(b) account. This means you may contribute the maximum dollar amount to your §457 plan and your §403(b) plan in the same year—twice the limit if you were to contribute to only one plan!
How do §457(b) Governmental plans operate?
- Your employer determines the features of the plan, including investment options and optional plan features such as the ability to take hardship distributions or loans and making contributions to a Roth §457 account.
- You decide how much you wish to invest each pay period, how your contributions will be allocated among the available investment options, and later, how your assets will be distributed.
- The Legend Group establishes the plan in accordance with your employer’s instructions and directs your contributions to the appropriate investments. When you decide to begin withdrawing from your account, Legend distributes your funds as you advise.
- You may transfer your account to another §457(b) Governmental plan maintained by another employer after your termination from service with your current employer. You also can roll your account to a qualified plan (i.e. §401(k), money purchase, profit sharing plan, etc.) that will accept such rollovers. After you separate from service, you may also roll your account to an IRA.
Distributions from a traditional retirement account are subject to ordinary income taxes in the year distributed.
Defaulting on a loan from a retirement plan constitutes a distribution from that plan. Loans may affect cash values and death benefits.