457 Deferred Compensation Plan: What Makes It So Special?

The 457(b) Deferred Compensation plan is very special. It’s only available to employees of a state or local government or to those of a tax exempt entity. The plan allows for the same contribution limits as a 401(k) or 403(b) but can be accessed prior to age 59 1/2. Normally, if you take withdrawals before that age, the member would be hit with a 10% early withdrawal penalty, but the 457 isn’t hindered by the penalty which makes it an incredibly flexible retirement planning vehicle.

"In general, an eligible state or local government section 457 deferred compensation plan is not a qualified retirement plan and any distribution from such plan is not subject to the 10% additional tax on early distributions. However, any distribution attributable to amounts the section 457 plan received in a direct transfer or rollover from one of the qualified retirement plans listed above would be subject to the 10% additional tax."

Many deputies and law enforcement officers retire far before the age of 60. In fact, many retire between the ages of 45 and 50. Not only does this present a problem if you can’t access your retirement funds until 59 1/2, but it also means that those funds need to last longer than they would for most people who have the option of working longer. 

If you’re lucky enough to have a 457 we recommend that you take advantage of it. This allows you to build a fund which you can bridge the gap of useable retirement dollars between and could very well become your main source of income during your first 10 to 15 years of retirement. 

Knowing when you plan to retire can have much broader implications than just figuring out how much money you’ll need to save. Contact us to learn more about the challenges that you could be unknowingly facing.