4th Quarter 2019

4 Things to Know About 457 Retirement-Savings Plans

4 Things to Know About 457 Retirement-Savings PlansA 457 retirement-savings plan makes it easy to build up tax-advantaged savings for the future. The money is automatically deducted from your paychecks and invested before you have a chance to spend it. Here are four things you may not know about 457 plans:

Pre-tax contributions to a 457 plan can reduce your take-home pay by less than you’d think. If you’re in the 22% federal income-tax bracket, contributing $500 per month lowers your take-home pay by only $390 because the money is invested before taxes are deducted from your paycheck.

You can save more in a 457 plan in 2020. The contribution limits rose from $19,000 in 2019 to $19,500 in 2020. Catch-up contributions for people age 50 and over also increased by $500 to $6,500, bringing their total contribution limit up to $26,000 in 2020.

You may be able to make a special kind of catch-up contribution to a 457 plan. If you’re within three years of your “normal retirement age” (which is specified in the plan) but haven’t maxed out your 457 plan contributions over the years, you may be eligible to contribute up to twice the usual limit, for a total of $39,000 in 2020. (You can’t take this “pre-retirement catch-up” and the age 50 catch-up in the same year.) See www.icmarc.org/contributionlimits.

Withdrawal rules for 457 plans are more flexible than other types of retirement-savings accounts. You can take penalty-free withdrawals from your 457 account at any age after you leave your job. Most other types of retirement-savings plans assess a 10% penalty if you withdraw money before age 55 or 59½, depending on when you leave your job.

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