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I am starting a new job at a non-profit, non-governmental hospital and can participate in 403(b) and 457 plans. I am planning to max out the 403(b) plan($17.5k). I wanted to know if contributing to the 457 was a good idea if I wasn't sure I was going to stay at the job for more than 1-3 years?
As I understand it, the 457 allows one more way to reduce taxable income in the current year, like the 403(b), but when I leave my job I have to go to an employer with a 457 and transfer the account or take a taxable distribution (current tax rate + 10% penalty). i.e. I cannot transfer the account to an IRA.
Thanks for any advice.
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There are two different types of 457 accounts. To the best of my knowledge, the government (quasi-government) funds have no penalty when the funds are withdrawn after you separate from service. These funds can also be transferred to an IRA. I have a 457b account and retired about a year ago. I did a partial transfer of my 457 account to my IRA.
The 457 plan is a type of non-qualified tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pre-tax basis. For the most part the plan operates similarly to a 401(k) or 403(b) plan most people are familiar with in the US. The key difference is that unlike with a 401(k) plan, there is no 10% penalty for withdrawal before the age of 59½ (although the withdrawal is subject to ordinary income taxation). Also 457 plans (both governmental and non-governmental) can allow independent contractors to participate in the plan where 401(k) and 403(b) plans cannot.
There are non governmental 457 plans. They have different rules. Again from Wikipedia:
Non-governmental 457 plans have a number of restrictions that governmental ones do not. Money deferred into non-governmental 457 plans may not be rolled into any other type of tax-deferred retirement plan. It may be rolled only into another non-governmental 457 plan. Also, money deferred into non-governmental plans is not set aside in a trust for the exclusive benefit of the employee making the deferral. The Internal Revenue Code requires that money in a non-governmental 457 plan remains the property of the employer and is thus available to general creditors of the employer in legal or bankruptcy proceedings.
So the "good idea" or not revolves around the type of 457 plan to which you have access.
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