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Statistics show that the average life expectancy in the U.S. rose from 39 years in 1880 to about 79 years in 2019. In absolute numbers, this means longer retirements and greater need for money to pay expenses later in life. Understanding the options available in your current retirement plan is the first step toward providing for your future needs. Employees who contributed to a 457 deferred compensation plan can continue enjoying tax-deferred benefits by rolling their balance over to another retirement account. A Plan 4, Inc. financial advisor can help review your options and navigate this complex process.
In essence, a 457(b) plan is an employer-sponsored retirement plan that allows you to contribute a portion of your pre-tax income. Depending on the details of your plan, your employer may match all or a percentage of your contributions. There are three distinct advantages to a 457 retirement plan: 1) contributions and realized growth, such as interest and dividends, are not taxed until you start withdrawing money2) increased contributions, or 'catch-up' contributions, are allowed for those age 50 years or older3) additional catch-up contributions may be allowed if you are within three years of normal retirement age
There are two types of 457 plans with specific key differences.
Highly Compensated Employee Plans
The purpose of a rollover is to transfer the holdings of one retirement plan to another without creating a taxable event. Taxes are typically not paid when performing a direct rollover as long as you have separated from your employer. One option is to roll over your 457 plan into a traditional IRA or a ROTH IRA if you had a ROTH 457(b) plan. This type of rollover is set up between individuals and managed by a retail brokerage firm. You can also convert your 457 plan into a ROTH IRA which means that you will pay taxes going into your account, after that all further withdrawals are tax-free.
Another option is to roll your 457 plan into your new employers' 401(k) or 403(b) account. A 401(k) is a company-sponsored retirement account, and a 403(b) account is for school district employees or other tax-exempt organizations such as churches. Qualifying 457 plan holders can also roll over into an individual 401(k) account that covers a business owner and their spouse but has no employees.
Another option is to either roll your 457 plan into your new employer's 457(b) government plan, leave it in the existing 457 plan, or cash it out according to the plan's options and pay due taxes. It's important to note that you can't contribute to a 457 plan after retirement.
Learn more about how you can maximize your 457 plan to ensure that your contributions keep on working for you, even if you're not. Contact Plan 4, Inc. and speak to us today!