For previous generations, working in the public sector ensured a guaranteed income in retirement through a pension benefit. However, public-sector and nonprofit organizations now offer employer-sponsored plans, the 403(b) and the 457, to help fund an employee's retirement. These plans function similarly to a private employer's 澳洲幸运5官方开奖结果体彩网:401(k) plan.

The 457 Plan

There are two types of 澳洲幸运5官方开奖结果体彩网:457 plans. A 457(b) is offered to st🌱ate and local government employees, while a 457(f) is for to🐼p-level executives at non-profits.

457(b)

If you have a 457(b) plan, you can contribute up to $23,000 in 2024 and $23,500 in 2025. You can also contribute an additional $7,500 in 2024 and 2025 in 澳洲幸运5官方开奖结果体彩网:catch-up contributions if you’re 50 or older.

For 2025, with the passage of the 澳洲幸运5官方开奖结果体彩网:SECURE Act 2.0, the catch-up limit for 457 plan participants increased for those aged 60 to 63 to $11,250.

You may be able to contribute as much as twice the limit if you're within three years of 澳洲幸运5官方开奖结果体彩网:normal retirement age. This amount is $46,000 for 2024 and𓂃 $47,000 for 2025.

However, your maximum contribution when you are within three years of normal retirement age is the lesser of twice the contribution limit or the annual limit plus the unused annual limit from prior years.

457(f)

The 457(f) plans differ significantly from their 457(b) counterpart. Sometওimes described as golden handcuffs, the 457(f) is used to recruit executives from the private sector, where the pay tends to be higher and the b🐎enefits more generous.

Under a 457(f) plan, compensation is deferred from taxation without income limitations. However, this deferred compensation is subject to a substantial risk of forfeiture, which means executives risk losing the benefit if they fail to meet specific requirements for length of service and performance. When the compensation becomes guaranteed and is no longer subject to the risk of forfeiture, it becomes taxable as gross income.

Because the deferred compensation is not yet paid and is sheltered from taxation, the benefits remain💧 in the hands of the employer.

Executives must perform services for at least two years to receive benefits under a 457(f) plan.

457 Plans: Pros and Cons

The 403(b) Plan

A 403(b) plan is typically offered to employees of private nonprofits, public school employees, and certain ministers. Like 401(k) plans, 403(b) plans are defined-contribution plans that allow participants to save on a tax-deferred basis for retirement.

When these plans were created in 1958, they could only invest in annuity contracts. So, they were known as 澳洲幸运5官方开奖结果体彩网:tax-sheltered annuity (TSA) plans or tax-deferred annuity (TDA) plans.

These plans are most commonly used by educational institutions. However, any entity that qualifies under 澳洲幸运5官方开奖结果体彩网:IRS Section 501(c)(3) can adopt it.

403(b) Plans: Contribution and Deferral Limits

The contribution limits for 403(b) plans are now identical to those of 401(k) plans. All employee deferrals are made on a pretax basis and reduce the participant's 澳洲幸运5官方开奖结果体彩网:adjusted gross income (AGI) accordingly.

The annual contribution limit is $23,000 in 2024 and $23,500 in 2025. Individuals can invest an additional catch-up contribution of $7,500 for 2024 and 2025 if they're 50 or over.

The catch-up limit for 403(b) plan participants age 60 to 63 is $11,250 for 2025. (This is also the case for 457 plans.)

These plans offer an additional catch-up contribution provision known as the lifetime catch-up provision or the 15-year rule. Employees who have at least 15 years of tenure are eligible for this provision, which allows for an extra $3,000 payment a year. However, this provision also has a lifetime employer-by-employer limit of $15,000.

After-tax contributions are allowed in some cases, and Roth contributions are also available for employers who opt for this feature.

Like with 401(k) plans, employers can institute automatic 403(b) plan contributions for all workers, although employees may opt-out. Eligible participants may qualify for the 澳洲幸运5官方开奖结果体彩网:Retirement Saver's Credit.

The IRS applies 403(b) contribution limits in a specific order. First, they apply the elective deferral. The IRS then uses the 15-year service catch-up provision. These are followed by the catch-up contribution. It is an employer's responsibility to limit contributions to the correct amounts.

403(b) Plans: Rollovers

If you leave your employer, you can take your plan to another employer. You can roll over your plan into another 403(b), a 401(k), or another qualified plan.

You can also choose to roll over your plan into a 澳洲幸运5官方开奖结果体彩网:self-directed IRA instead. This enables you to potentially maintain one retirement plan throughout y𒊎our career rather than managing multiple ꦍplans from various employers.

Keep in mind that the Retirement Security Rule, which went into effect on Sept. 23, 2024, closed the one-time transaction loophole for fiduciary investment advisors. This means that a fiduciary who advises you on your plan rollover must act in your best interests, avoid misleading statements, and charge no more than a reasonable fee for their services.

403(b) Plans: Distributions

403(b) plan distribution rules resemble 401(k) rules. They are reported each year on 澳洲幸运5官方开奖结果体彩网:Form 1099-R, which is mailed to plan participants.

• You can start taking distributions at age 59½.
• Distributions taken before age 59½ are subject to a 10% early withdrawal penalty unless a special exception applies.
• All normal distributions are taxed as ordinary income.
• Roth distributions are tax-free. However, employees must either contribute to the plan or have a Roth IRA open for at least five years before being able to take tax-free distributions.
• 澳洲幸运5官方开奖结果体彩网:Required mi💧nimum distributions (RMDs) must begin at age 73 with the passage of the SECURE Act of 2022. Failure to take a required minimum distribution will result in a 25% excise tax on the amount that should have been withdrawn.
• Loan provisions may also be available at the employer's discretion. The loan rules are also mostly the same as those for 401(k) plans. Participants cannot access more than the lesser of $50,000 or half of the plan balance. Any outstanding loan balance not repaid within five years is treated as a taxable or premature distribution.
• Beginning in 2024, participants will be able to access up to $1,000 annually from retirement savings for emergency personal or family expenses without paying the 10% early withdrawal penalty.

403(b) Plans: Investment Choices

Investment options in 403(b) plans are limited. Funds are typically invested in an annuity contract provided by an insurance company or in a mutual fund via a custodial account.

This situation is a source of ongoing debate in the financial and retirement planning community. Annuities are tax-deferred vehicles in and of ꧙themselves, and there is no such thing as double tax deferral.

403(b) Plans: Miscellaneous Issues

403(b) plans differ from 401(k)s in that, in theory, 403(b) contributions are immediately vested and cannot be forfeited. In practice, however, employers can make contributions to a separate account and, as benefits vest, retroactively apply them to the 403(b) plan.

In addition, due to the Bankrupꦰtcy Abuse Prevention and Consumer Protectio𒁏n Act of 2005, 403(b) plans receive the same level of protection from creditors as qualified plans.

Plan participants should also be aware of all of the fees charged by their plan and investment providers. The plan adm꧙inistrator must provide all pl🍸an participants with a complete breakdown of these fees.

The Bottom Line

If you need more time to put aside money for retirement, a 457(b) plan may be best for you. A 403(b) often offers fewer investment options. However, you can also split your contributions between both plans. In 2024, you can save $46,000 ($47,000 in 2025) between the two plans, not including any catch-up contributions if you’re eligible.