{"id":2432,"date":"2022-04-23T13:17:00","date_gmt":"2022-04-23T20:17:00","guid":{"rendered":"http:\/\/financegourmet.com\/blog\/?p=2432"},"modified":"2023-01-17T08:12:50","modified_gmt":"2023-01-17T15:12:50","slug":"how-to-use-roth-457-plans","status":"publish","type":"post","link":"https:\/\/financegourmet.com\/blog\/retirement\/how-to-use-roth-457-plans\/","title":{"rendered":"How To Use Roth 457 Plans"},"content":{"rendered":"\n

When it comes to retirement planning<\/a>, 457 plans are kind of the neglected younger sibling of the better known 401k plans. Both are employer sponsored retirement plans, meaning your employer has to set them up for you, unlike an IRA or Roth IRA which are individual retirement plans. However, a 457 plan is a special retirement savings plan in that it is only allowed for certain organizations, specifically governmental employers and non-profit employers. The non-profit 457 plans are known as non-governmental 457 plans and are less flexible.<\/p>\n\n\n\n

For governmental 457 plans, the main advantage is that unlike 401k plans, there is no 10 percent penalty for withdrawing money from a 457 plan prior to age 59 1\/2 like there is for a 401k savings plan<\/a>. However, withdrawals from a 457 plan are taxable, just like withdrawals from a 401k plan are taxable.<\/p>\n\n\n\n

Which brings us to the Roth 457 savings plan<\/a>.<\/p>\n\n\n\n

Roth 457 Retirement Plan<\/h3>\n\n\n\n

As you can probably guess from the name, a Roth 457 plan has similar tax-advantages to a Roth IRA, or Roth 401k, namely that withdrawals from the account are tax-free, rather than taxable. In exchange, you do not get the up-front tax savings from your contributions like you do with a traditional IRA or traditional 401k retirement plan.<\/p>\n\n\n\n

In order to use a Roth 457 retirement account, your employer must first offer that option. An employer may offer only a regular 457 plan or may offer both a Roth 457 account and a traditional 457 account. For example, the State of Colorado offers a Roth 457 retirement account plan option via Colorado PERA.<\/p>\n\n\n\n

If your employer does offer a Roth 457 plan, then you contribute via salary deferral just like with a standard 401(k) plan. Your deferral may be as a percentage of salary, a fixed amount contribution, or other option, up to the annual maximum 457 contribution allowed by law and your plan. There are no coordination rules with 457 plans versus 401k plan anymore. That means you can make the maximum 401k contribution AND another full maximum annual contribution to your 401k plan, for a total of $36,000 ($18,000 each, with a catch-up contribution allowed for those age 50or older).<\/p>\n\n\n\n

Your contributions are after-tax. That means that the amount you contribute still counts as taxable income.<\/p>\n\n\n\n

Withdraw from Roth 457 Plan<\/h3>\n\n\n\n

The main advantage of a 457 plan over a 401k plan is that there is no 10 percent tax penalty on withdrawals made before age 59 1\/2. However, in order for a withdrawal from a Roth 457 contribution to be tax-free, the plan participant must be older than 59 1\/2. In addition, the first contribution to the Roth 457 plan has to have been made at least five years before the withdrawal.<\/p>\n\n\n\n

It is easier to understand with a quick table:<\/p>\n\n\n\n