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An employee makes contribution to a 457b from his pre-tax wages and there is a maximum limit to the annual contribution amount, which is prescribed by the Internal Revenue Code. For 2007, the maximum limit is lesser of $15,500 or 100 percent of the employee’s salary. This is for people who are below 50 years. Those who are 50 and above can contribute an additional $5,000 as a part of the catch up plan.
Since the contributions are made before taxes, you will have to pay taxes once you withdraw money from your 457b account. However, unlike the 403b plan, there is no penalty for early withdrawal.
However, the money that is put into a 457b plan does not belong to the employee. This is quite unlike other retirement plans. The assets in a 457b plan are, in fact, a promise from the employer to the employee.
Before 2001, funds from a 457b plan could be rolled over to another 457b plan. And those employees who had a public plan could rollover money to an IRA or 401k plan. However, employees with a private 457b plan were not allowed to rollover money into qualified retirement savings plans. The Economic Growth and Tax Relief Reconciliation Act of 2001 changed the rules. From 2002, employees could rollover to a 403b plan.
Essentially a 403b plan is also a retirement savings plan offered by non-profit organizations and educational institutes that exempt from taxes. In order to rollover money from a 457b to a 403b plan, your employer should offer the 403b. If your employer offers it, you can ask for direct rollover wherein the assets from your 457b plans are transferred through check or wire transfer to the trustee of the 403b plan. This entire transaction is handled by the trustees and you are not involved. You get the entire amount and you can plan your investment along with the account administrator.
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