Question : What is the difference betwen 401 and 457 retirement plan for a government employee?
I am a local government employee. Speaking from my memory 401 is pretty identical to 401 offered in private sector. You are immediately eligible for it. I want to make sure I am understanding 457 right. I think you become eligible for 457 only after one year of service and there's no early withdrawl penalty (10%) if you withdraw before your retirement age. Am I right?
- asked by Del
All Answers:
Answer #1
56
- answered by Laura F
Answer #2
no, unfortunately you are wrong. The 457 is thesame as the 401k, with basically 2 maindifferences. 1. You can only roll over 457assets to your 457 accounts, as for the 401kaccount you can roll over 457 assets into it.(example, you working for the goverment and youdecide to go to the public sector you could rollyour money to the new 401k) (working in the publicsector and then gov job you can not roll your 401kto the new 457)2. The other main difference isyou can use your 457 assets for a transfer forpermissive service credits toward your pension. All this means is, when you retire, you can electto roll your money over to your goverment pensionif you would like. You can not withdraw thismoney unless you can show an emergency hardship,or if you have less than 5k and you leave the job. You can withdraw the money at 59 1/2 likeeverybody else, but if you elect to withdraw atage 56, you have to take systematic payments forthe rest of your life. The government allows youto get your money at 56 with no penalty, but youpay a price because you now elect to have the samepayment amount forever. vs. 59 1/2 when you couldjust walk away with the whole lump sum (pay yourtax's of course). I hope this helps.Person belowiswrong....
http://www.tiaa-cref.org/administrators/plan_admin/details_compliance/plan_comparison.html
- answered by Jess2424
Answer #3
457 plans cannot always be rolled over. Itdepends on if they are considered 'qualified'plans or not. You need to check with your planadministrator to see if your plan is 'qualified'Inthe case of non-qualified plans, you may not haveto pay a penalty if you withdraw before you are 591/2. However, when you retire, you may have towithdraw the entire amount at once and pay taxeson the lump sum, because you cannot roll itover.All of these rules have to do with how yourspecific plan was set up - so you need to beasking your plan administrator to be sure aboutthe rules for your plan.
- answered by aj485
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