Top 10 Reasons to Participate in a Govermental 457

Compared to other ways to save for your retirement, a 457 plan has many advantages. Here are our top 10 reasons why you should participate.

1. Participants can contribute $15,000 to a 457 and $15,000 to a 403(b) plan for a total of $30,000. A school district is one of the few employers that have the ability to allow contributions to both plans.
2. It is estimated that 65% of teachers leave the school district during their first five years of teaching. Adding a 457 plan will improve your ability to retain these quality individuals.
3. Participants who are age 50 or older can contribute an additional $5,000 to each plan as a catch-up contribution.
4. During the three years prior to normal retirement age, participants may increase contributions to an amount that does not exceed the lesser of two times the applicable limit for the current year or the current limit plus that portion of the normal limit not used in prior years.
5. Participants can use 457 and 403(b) assets to buy permissive service credits or to buy back forfeited years of service credits in State Defined Benefit Plans. The purchase of service credits is by a direct trustee-to-trustee transfer without taxes or IRS penalties. This direct transfer can occur without a qualifying event.
6. 457 plan withdrawals are available at any time after severance from employment. Unlike 403(b) plans, 457 plans are exempt from the 10 percent premature distribution penalty.
7. Eligible rollover distributions from a 457 plan can be rolled into a Traditional IRA, 401(a), 401(k) plan, or a 403(b) plan. These amounts will take on the characteristics of the new plan.
8. Eligible rollover distributions from Traditional IRAs, 403(b) plans, or 401(a)/401(k) plans may be rolled into a 457 plan. However, these amounts must be accounted for separately because the 10 percent early distribution penalty tax will apply to distributions from a 457 plan that are attributable to such rollover amounts.
9. Loans may be available from a 457 plan as well as a 403(b) plan. Additionally, distributions may be available for unforeseeable emergencies.
10. You have the ability to include additional people excluded from your 403(b) plan. In a 457 plan, you can include staff members such as school board members and outside contractors.

This Web site is not intended or written to be used as legal or tax advice. As a taxpayer, you cannot use it for the purpose of avoiding penalties that may be imposed under the tax laws. You should seek advice on legal or tax questions based on your particular circumstances from an independent attorney or tax advisor.

*Statistics compiled from the 2004 Retirement Confidence Survey, Employee Benefit Research Institute; and "Coming Up Short: The Challenge of 401(k) Plans," Alicia Munnell and Annika Sunden