Get Governmental 457(b) Tax-deferred Retirement ... - American Century

Cons of 457(b) plans: Fewer investing options than 401(k)s (Not as common today) Only available to certain employees employed by state or local governments or qualifying nonprofits. Employer contributions count toward the annual limit.

Employees can make withdrawals from their 457(b) account when they leave employment. They have the ability to take payments as needed or request scheduled automatic payments. They maintain control over their investments and continue to benefit from tax deferral even after they leave their employer.

A key advantage of having a 457(b) plan over 401(k) plans is the leeway it offers to early withdrawals. A 457(b) plan is technically not a retirement plan which makes it not subject to withdrawal rules and penalties like that of a 401(k) plan.

Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Ineligible plans may trigger different tax treatment under IRC 457(f).

It's possible that you may have access to a 457(b) and a 401(k). The IRS says it's okay to contribute to both at the same time. Since retirement plans typically have contribution limits, contributing to a different plan can double your tax deferral.

Cons of 457(b) plans: Fewer investing options than 401(k)s (Not as common today) Only available to certain employees employed by state or local governments or qualifying nonprofits. Employer contributions count toward the annual limit.

Unlike 401(k) plans, which require employees to wait until age 59 ½ before making qualified withdrawals, 457 plans allow withdrawals at whatever age the employee retires. And the IRS doesn't impose a 10% early withdrawal penalty on withdrawals made before age 59 ½ if you retire (or take a hardship distribution).

You are typically subject to 20% mandatory federal tax withholding if you elect to directly receive funds eligible for rollover to another employer plan or an IRA. Regardless of your age, you are not subject to a 10% early withdrawal penalty on distributions of 457(b) plan contributions and earnings.