Learning About Finance and Money
Leaving Your Government Position For The Private Sector? What Should You Do With Your 457 Account?
Jordy De Pijper
If you've already devoted a number of years of your working career to a job in the public sector, you may have accumulated a fair amount of money in your government-sponsored 457 retirement plan. These plans are the public equipment of the 401(k) retirement plans offered by private sector employers, named for their respective sections under Title 26 of the United States Code, but can provide some additional benefits not available to 401(k) holders. Read on to learn more about the benefits offered by your 457 after your separation from public sector employment, as well as your most financially-savvy rollover or disposition options once you've moved into private sector employment.
What benefits are offered by a 457 plan?
Contributions to a 457 are structured nearly identically to 401(k) contributions, allowing you to contribute up to $18,000 per year, pre-tax, to your account. However, unlike a 401(k) plan, 457 plans allow you to withdraw your contributions at any time, without penalty, once you've left your government job (as long as you don't roll the 457 from your previous job into a new 457 or 401(k) plan). Some 457 plans also permit employees who are nearing retirement to significantly increase their 457 contributions for several years prior to their retirement date -- contributing the lesser of twice the annual maximum ($36,000) or the annual maximum plus any portion of this maximum contribution amount left "empty" during previous years. Being able to shelter these amounts from tax during what could be your highest earning years can save you a substantial amount of money.
What should you do with your 457 plan after leaving public sector employment?
The most financially-savvy decision for the funds in your 457 plan largely depends on your future. If you're transitioning to a private sector position but anticipating an early retirement, you may want to leave these funds in your account and begin withdrawing them at retirement (but before you've reached the requisite age to be able to take penalty-free withdrawals from other types of retirement accounts). In other cases, you may want to withdraw the funds entirely and invest them in a new business venture or a rental property to help provide steady income. It's important not to tie these funds up by withdrawing them and placing them into another tax-advantaged retirement account like a 401(k) or IRA, as doing so could subject these funds to restrictions not placed on them by the original 457 plan.
To learn more about retirement planning, contact a company likeRichard Brown Investments.
Share
Hello, my name is Remy. When I was a young kid, I tucked all of my funds into a savings account set up by parents. When they found out I was saving every last dime, they helped me split the funds into a sustainable allowance for saving, spending and giving. I would like to teach you to use this method on your monthly funds. A healthy budget allows you to cover all of your obligations plus giving back to your community. I welcome you to visit my site often to learn all you can about finance and money. Thanks for coming by.