Money saved in a 457 plan is designed for retirement, but unlike 401(k) and 403(b) plans, you can take a withdrawal from the 457 without penalty before you are 59 and a half years old. There is no penalty for an early withdrawal, but be prepared to pay income tax on any money you withdraw from a 457 plan (at any age).
How much tax do I pay on 457 withdrawal?
20%
5 457(b) Distribution Request form 1 Page 3 Federal tax law requires that most distributions from governmental 457(b) plans that are not directly rolled over to an IRA or other eligible retirement plan be subject to federal income tax withholding at the rate of 20%.
Can a 457 ( b ) plan be used for retirement?
Many public employees have the option of saving for retirement in a 457(b) plan. These employees can opt to have money taken out of each paycheck and stashed in a retirement account. Their take-home pay will be smaller by the amount they contribute to the 457(b), meaning that their tax burden will be lower.
What happens if I withdraw money from my 457 account?
Let’s say you decide to leave your job. This is called “separation from service.” At the time of separation, you might find yourself without an income while you’re looking for another job. If you have a 457(b), you can withdraw funds from the account without facing an early withdrawal penalty.
Is there a rollover option for 457 ( b )?
Your only rollover option is if your new employer also has a non-governmental 457 (b) AND that new employer’s plan accepts rollovers. Your plan may require lump sum distribution at the time of retirement or you may be allowed to choose to receive the money over a certain number of years. For example, my plan recently changed for the better.
What’s the income replacement goal for a 457 plan?
Congress authorizes employers to offer non-governmental 457 plans with preferential tax treatment to encourage saving for retirement. 457 plans are often pitched with a figure similar to the one above. Note the “income replacement goal” is 80% in the figure.
