Saving with a 457(b) plan

A 457(b) deferred compensation plan lets you save and invest for the future with tax advantages you can’t get from regular savings and investment accounts. It works much like a 401(k) plan, but it is tailored to government employees and certain nonprofit workers.
 

A 457(b) plan is one of your most important employee benefits. The sooner you enroll, the sooner you can take advantage of its many features.

• Convenience: When you enroll in your retirement plan, contributions are deducted from your paycheck—it’s automatic.

• Tax advantages: You can choose traditional pretax contributions or, if offered by your governmental 457(b) plan, designated Roth after-tax contributions—or both. Each has unique benefits that may help you save more with less (see next section). 

• Growth potential: A 457(b) plan gives you the opportunity to invest your account for growth potential. This allows you to take advantage of the power of compounding, which may increase your account balance through the potential for earnings on your earnings.

• Choice and flexibility: Corebridge offers an array of investment options selected by your employer so you can design a strategy that’s right for you. You can choose from “do it for me” or “do it myself” options, depending on your needs. Either way, a Corebridge financial professional can help you with your planning.²

• Portability: If you leave your job and have a governmental 457(b) plan, you can generally move your funds to another employer-sponsored retirement plan that accepts rollovers or to an IRA (see below). If you have a nongovernmental 457(b) plan, you can only move the money to another nongovernmental 457(b) plan, subject to certain requirements.

• Support: You’ll have access to Corebridge’s wide variety of planning and learning resources to help you take action for your future. This includes one-on-one help from a Corebridge financial professional.
   

A governmental 457(b) plan can have two types of contributions. You can choose traditional pretax contributions, designated Roth contributions (if offered by your plan) or both. Consult with a tax advisor if you need assistance based on your personal situation. Nongovernmental 457(b) plans only allow traditional pretax contributions.

Traditional pretax contributions (taxes later)

With the pretax option, contributions are made before taxes are calculated and are deducted dollar for dollar from your taxable income in the year they are made. That means potentially lower annual taxes while you’re saving. Contributions and earnings are taxed when withdrawn. Funds withdrawn prior to age 59½ may be taxable but are not subject to an additional 10% tax penalty if you are separated from service.³

When to consider this option

• You are in a higher tax bracket now than you expect to be in retirement.

• You want to reduce your current taxable income.

Designated Roth after-tax contributions (taxes now)

With this option, contributions are made after taxes are calculated and are therefore not deducted from your taxable income in the year they are made. Contributions are tax free when withdrawn, and any earnings can be withdrawn tax free as long as (1) it’s been at least five years from the beginning of the first year in which a designated Roth contribution was made and (2) you’re at least 59½, you’re disabled, or the payment is made after your death to your beneficiary. Otherwise, distributed earnings may be taxable.

When to consider this option

• You are in a lower tax bracket now than you are likely to be in later, including in retirement.

• You cannot contribute to a Roth IRA due to the income limits.

• You want tax diversity and flexibility in retirement, with a mix of taxable and tax-free income sources.
   

Contributing any amount in a 457(b) plan may make a difference for your future. If you’re able, consider saving to the limit for the maximum benefit. You can change your contribution amount at any time.

Annual limits

Generally, you may contribute as much as 100% of your annual includible compensation—which includes salary, bonuses and any other taxable benefits—up to the annual contribution limits set by the IRS. The limits apply to the combined total of traditional pretax and designated Roth after-tax contributions. View the contribution limits. 

Important: A 457(b) plan has a single annual contribution limit for employee and employer contributions combined. This limit is on top of the aggregated limits for other retirement plans like 403(b) or 401(k) plans, increasing your overall savings potential.

Catch-up contributions

Governmental 457(b) plans offer age-based catch-up contributions starting in the year you turn 50 (not applicable to nongovernmental 457(b) plans). Know the rules for catch-ups above the income limits. 

All 457(b) plans offer service-based catch-up contributions if you are within the last three taxable years ending the year before the year you attain normal retirement age—as specified under the plan—and have undercontributed in prior years. If you’re eligible for both types of catch-up contributions, you must choose one or the other. A Corebridge financial professional can help calculate your annual contribution limits. Learn more about catch-up contributions.
 

While your retirement plan is here to help you save for retirement, there may be cases where you need access to your money sooner. Here are the general rules for withdrawals from a 457(b) plan. These rules generally apply to withdrawals on all pretax savings and on the earnings only for Roth after-tax contributions. Your 457(b) plan rules may differ.

Withdrawals allowed, subject to tax (no 10% tax penalty)

• Severance from employment at any age, whether you retire, leave your job or are terminated

• Reaching age 59½ while still employed (governmental 457(b) plans only)

• Unforeseeable emergency: (1) an illness or accident involving you or a dependent, (2) loss of property due to a casualty like a fire or flood, (3) other extraordinary circumstances arising from events beyond your control

• Death

Tax-free loans may be available⁴
 

Ready to make the most of your 457(b) plan? Enroll and start contributing today.

For specific questions regarding your situation, speak with a tax professional or contact your Corebridge financial professional. Reach out to us if you don’t have an assigned financial advisor.
 

¹This in formation is general in nature, may be subject to change, and does not constitute legal, tax or accounting advice from Corebridge Financial employees, financial professionals or other representatives. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties.

²Remember all investment involves risk, including possible loss of principal.

³Any funds rolled over to the 457(b) plan from other non-457(b) retirement plans may be subject to taxes and an additional 10% tax penalty.

⁴Applies to governmental 457(b) plans only. If loans are provided by your plan, any loan amount not repaid on time will be taxed as ordinary income and, in certain circumstances, may be subject to an additional 10% tax penalty if you are under age 59½.

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