Your 457 Plan – The Roth Contribution Option*
In addition to pre-tax deferrals, your employer's 457 plan may also permit Roth deferrals, which are made on an after-tax basis. Roth deferrals and associated earnings can be withdrawn tax-free in retirement if the requirements for a "qualified distribution" are met. If the Roth contribution option is available in your 457 plan, you can designate a portion (or all) of your contributions to the plan as Roth.
Qualified "Tax-Free" Distributions
Distributions of Roth assets (contributions and associated earnings) are qualified if:
- a period of five years has passed since January 1 of the year in which the first contribution (including rollovers) was made to your Roth account; and
- you are at least 59½ years old (or disabled or deceased)
If the requirements for a qualified distribution are not met, and the assets are not rolled-over to another eligible plan, the earnings portion of the distribution will be taxable.
Benefits of Roth Contributions
In addition to potentially tax-free distributions in retirement, the ability to make Roth contributions to your 457 plan has the following benefits:
- Higher after-tax contribution limits than Roth IRAs - 457 plans allow for greater after-tax savings.
- Eligibility at all income levels - Unlike Roth IRAs, everyone with earned income is eligible to make Roth contributions to their employer's 457 plan.
- Tax planning - Having both pre-tax assets and Roth assets available in retirement can be a valuable benefit, allowing you to choose the source of funds most advantageous to your situation at the time of the distribution.
Which is better: Roth or pre-tax contributions?
Everyone's situation is different and you may want to consult a tax advisor before making a decision. The Roth Analyzer will help you evaluate the benefit of making Roth contributions to your 457 plan. Ultimately, you may find that contributing a combination of pre-tax and Roth deferrals makes the most sense.
How do I start making Roth contributions?
You should contact your employer or ICMA-RC to confirm that your plan permits Roth deferrals. Provided that you have already enrolled in the plan, you can use the 457 Deferred Compensation Plan Amount of Deferral Change Form to start making Roth contributions.
- Introduction to 457 Plan Roth Deferrals - A New Way for You to Save for a Secure Retirement
When can I withdraw Roth assets from my 457 plan?
The same eligibility requirements that apply to other distributions from your 457 plan also apply to Roth assets in the plan.
For additional information, please review the 457 Plan Roth Provisions Employee Questions & Answers document or contact ICMA-RC's Investor Services toll-free at 800-669-7400.
* Not available in all plans. Please check with your employer to confirm whether or not Roth deferrals are offered in your plan.