The 457(b) is a retirement plan available to employees of state and local governmental agencies, and 501(c) organizations. You may be eligible to contribute to both a 403(b) and a 457(b). This plan is often referred to as a deferred compensation plan. How a 457(b) is Different From a 403(b) The key differences are:

• There is no federal 10 percent premature distribution penalty imposed on withdrawals from a 457(b) plan when separating from service.
• Ability to double regular contributions three years prior to normal retirement age (as defined by the plan document). This is known as the 3-Year Rule.

How Much Can Be Contributed to a 457(b)

Contribution Limits

• 2023: $22,500
• 2024: $23,000
• Participants aged 50 and older at any time during the calendar year are permitted to contribute an additional $7,500.

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Additional Catch-Up (Three-Year Rule) Employees who are three years from normal retirement age (as defined by the plan) are permitted the lesser of:

1. Two times current year’s normal retirement contribution limit, or
2. Underutilized limits from past years. Note: not all employers make this additional catch-up option available nor are they required to do so. Check with your employer for details.

Roth 457(b) This is a provision that permits employees to irrevocably designate all or a portion of their 457(b) as an after-tax Roth contribution. This type of contribution will not lower the employee’s taxable income. However, distribution of qualified Roth designated funds in retirement will not be subject to taxation. Participants have the option of making pre-tax 457(b) contributions, Roth 457(b) contributions, or as a combination of the two. Total contributions cannot exceed the year’s contribution limit. Not all employers offer a Roth 457(b), nor are they required to do so. Check with your employer for details. Distribution Eligibility

• Age 59½ (this is new as of 2021)
• Separation from service (see below)
• Upon retirement
• Unforeseen emergency (see below)
• Divorce
• Death

Borrowing Money From Your 457(b) Subject to availability and any additional conditions applied by individual vendors. IRS limits loans to the lesser of:

• $50,000
• One half of account value

What Happens to Your 457(b) If You Leave Your Employer

• Assets may be transferred to your new employer’s plan if permitted by that plan.
• Assets may be moved to a rollover IRA at an institution of your choice. This will permit the money to continue to grow tax-deferred.
• You may leave the money in your current plan and continue to enjoy tax-deferred growth. If your account has less than $5,000, you may be required to transfer assets. Check with your employer for details.
• You may take a lump sum distribution. Unlike the 403(b), there is no 10 percent early withdrawal penalty for withdrawing 457(b) money upon separation of service. Withdrawals will be taxed as ordinary income.

Unforeseen Emergency Withdrawal Unforeseen emergency withdrawals are permitted from your 457(b) account if the employee is under severe financial distress. The IRS definition of what qualifies as an unforeseen emergency is very specific and more stringent than the definition of hardship under the 403(b) plan. The emergency must be unexpected and unanticipated. Furthermore, the employee must have no other resources available to alleviate the stress, such as selling assets or obtaining a loan from a financial institution. Check with your vendor and employer for more information. Unlike the 403(b), disability itself is not a distributable event. However, it may be considered an unforeseeable event and you may be able to withdraw money, subject to certain rules and restrictions. Check with your employer and vendor for details.