If you’re an employee of the state or the local government or work for certain non-profits such as Church, you’re probably considering a 457(b) plan as your main retirement savings options. Since plans such as the 457(b) (and also 403(b) plans), typically get less attention, things can get a little confusing for you. However, they may not be as famous as the others but 457(b)s are just as important and in most cases just as good as 401(k)s. Although millions of Americans have access to 457(b) plans which make it hardly obscure, the differences to a 401(k) are not that great. There are also more benefits you get can get from 457(b) compared to 401(k)s.
You can also save for retirement just like a 401(k) a 457(b) plan since it’s also a workplace scheme available for employees like you. You can build up a retirement nest-egg by putting money from your paycheck and since not so many people save enough for retirement, that can be a nice setup. You’ll be able to stick to a saving plan when you automatically save. You’ll be able to reduce the tax that you pay now because you’re saving for retirement pre-tax although you’ll still pay the tax in retirement since it’s only tax-deferral.
You don’t have to pay anything when the money goes in, or should it grow or pay dividends in a 457(b) plan simply because they are tax-deferred plans. Since you normally spend your money in retirement, you end up paying the tax when you take money out to spend for it. You, therefore, save on taxes for your retirement savings by using a 457(b). The same case happens for retirees who expect to be in a lower tax bracket in retirement. The tax angel changes if you elect to use a Roth 457(b) because the tax benefits with a Roth only happens when the money comes out, not when it goes in. As you can see, 457(b) plans can also offer both traditional and Roth versions. If you’re a younger person and expect to see your tax bracket increase in retirement, you may find the Roth version a good choice to make. However, keep in mind that Not all 457(b)have a Roth option.
It’s typical for people to use the money in retirement as in any retirement scheme. You will have to start making withdrawals from your 401(k) or 457(b) by the time you are 70.5. There is more flexibility on potential earlier withdrawals with 457(b) plans.
You employer make contributions into the 401(k) or 457(b) plan in both cases if they choose to. The annual contribution limits are the same too are the same too. If you’re 50 or over, that’s $19,000 or $25,000 for 2019. Your contribution amount must also never exceed your pay and if you're very close to retirement, there could be some changes in terms of contribution limits.
