What is the main difference between a 457 plan and 403(b) plan, and how much can I contribute to both?
457 plans and 403(b) plans are quite similar. However, there are a few important differences.
If you take money out of your 403(b) plan before you reach age 59 1/2 and are still working, or you leave your job but are not yet age 55, you may have to pay an extra 10% penalty on top of the ordinary income taxes that will be due on the distribution.
In addition, 457 plan participants may be able to invest in a wide variety of vehicles, but 403(b) plan participants are limited to annuities and mutual funds.
There is no 10% penalty for early distributions from a 457 plan. However, you generally cannot take in-service distributions unless you have an unforeseen emergency.
The other main difference between 457 plans and 403(b) plans is how they are held. 403(b) contracts are held by you, the employee, either in an annuity or a custodial account if you invest in mutual funds. The assets in a 457 plan are held in a contract by the employer. However, these funds are protected from the district's creditors by law.
If you have a 403(b) and 457 plan, you can make a full contribution up to the limit for each, provided the amount you contribute is less than your total compensation for the year. In 2015, that is $18,000, or $24,000 if you are age 50 or older, for each account, or a total of up to $36,000 ($48,000 for age 50+).
In addition, eligible employees in 403(b) plans with 15 or more years of full-time service may be able to contribute a catch-up amount up to $3,000 more for five years, or a maximum of $15,000.
Eligible employees in 457 plans may be eligible to defer up to two times the contribution limit in effect for the final three years of service. However, employees cannot participate in the 3-year catch-up and the 457 plan age 50+ catch-up during the same tax year.
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