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457 Deferred Compensation Plans

A 457 plan allows you to save and invest money for retirement with tax benefits.

Assets in a 457 Deferred Compensation Plan typically become available for withdrawal once an employee leaves employment.

What Is a 457 Plan?

A 457 plan is a tax-deferred retirement savings plan. Funds are withdrawn from an employee’s income without being taxed and are only taxed upon withdrawal, which is typically at retirement, after the funds have had several years to grow. 

Employees make contributions as part of their paycheck and, if the employer offers a company match, the employer will make contributions as well. Contributions are made to an account in the employee’s name for the exclusive benefit of the employee and their beneficiaries. The value of the account is based on the contributions made and the investment performance over time.

Roth 457 Plans

Some 457 plans offer a Roth contribution option. Roth contributions are made after-tax, rather than before tax, and withdrawn tax-free at retirement if certain criteria are met.

Learn more about Roth 457 plans.

Are You an Employer? Start a 457 Plan

If you’re looking to start a 457 plan for your employees, contact us. If you’re an existing client, you can log into our employer website to send us a secure email message.

Are You an Employee? Enroll in a 457 Plan

You can enroll into your 457 plan online. Depending on your plan’s rules, you may also be able to change your contribution amounts online.

How 457 Plans Work

Pre-tax contributions to a 457 plan reduce the employee’s taxable income for the year. These contributions and all associated earnings are not subject to tax until withdrawal. Employees may be able to make after-tax Roth contributions, which allow for potentially tax-free withdrawals.

See 457 plan contribution limits for the current calendar year.

457 Plan Investment

An employee can control how their 457 plan investments are made by choosing from options offered by their employer’s plan.

A typical plan includes a wide range of options, from conservative stable value funds to aggressive stock funds. Employees can build a diversified portfolio of various funds, select a simple yet diversified target-date or target-risk fund, or rely on specific investment advice from their retirement plan provider. MissionSquare Retirement’s Guided Pathways® services provide plan employees with access to financial consultants and Certified Financial Planner™   professionals.

457 Plan Benefits

For employees, the key benefit of a 457 plan is that the savings are tax-deferred: Contributions are made on a pre-tax basis, reducing taxable income and growing tax-deferred until withdrawal.

457 plans also have the advantage of catch-up options. Employees over age 50 can contribute on top of the limit for the year. If an employee didn’t maximize contributions every year – which is likely – then 457 plans may allow employees to increase contributions beyond the normal maximum by using the special Pre-Retirement Catch-Up Provision.

For employers, the benefits are also clear: Offering a 457 plan can be used as part of a wider recruitment and retention strategy.

457(b) Withdrawal Rules

Employees can make withdrawals from their 457 account when they leave employment. They have the ability to take payments as needed or request scheduled automatic payments. They maintain control over their investments and continue to benefit from tax deferral even after they leave their employer.

During employment, subject to the employer and IRS and plan rules, employees may also be able to make withdrawals after a certain age, which varies based on the plan, or due to an unforeseeable emergency. A loan option may also be available.

457(b) Plan Taxes: How Much Tax Do You Pay on a 457 Withdrawal?

Withdrawals are generally taxable but, unlike other retirement accounts, the 10% penalty tax does not apply to distributions prior to age 59½ (the penalty tax may apply to distributions of assets that were transferred to the 457 plan from other types of retirement accounts).

For detailed tax information, view Special Tax Notice Regarding Plan Payments.

457 RMD Rule

Required minimum distribution (RMD) rules apply to 457 retirement accounts. An RMD is simply the minimum amount that an employee must withdraw annually in retirement. RMDs begin when someone reaches age 72 and is no longer working for that employer.

It’s up to the individual to make sure they’re withdrawing in line with the RMD, and there are penalties for not doing so. In most cases, the retirement plan administrator will inform the employee what their RMDs are.

Contact MissionSquare if you have any questions about RMDs for one of your MissionSquare accounts.

Withdrawing from a 457 Plan

Employees should have a plan for taking withdrawals from their account both to manage the tax bill and to provide for their future needs. For guidance, you may contact your MissionSquare Retirement representative.

To request a withdrawal from a MissionSquare Retirement account, employees should log into their account to see if their employer allows online withdrawals. Or, complete and submit the forms in the 457 Plan Benefit Withdrawal Packet. To obtain a copy, contact MissionSquare Plan Services.

457 Plan Survivor Benefits

Each 457 account must designate a beneficiary, or beneficiaries, to receive any remaining assets upon your death. Designating beneficiaries can help ensure your assets are paid per your wishes, avoid the potential costs and delays of probate, and allow non-spouse beneficiaries to receive additional tax benefits.

Enroll in a 457 Plan

If you’d like to enroll in a 457 plan for your employees, contact us.

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