Understanding What Employer Can Offer 457b Plan Means

A 457b plan is a type of deferred compensation plan that allows employees to set aside pre-tax dollars for retirement. This plan is offered by some employers as a benefit to their employees.

The benefits of a 457b plan are numerous, including tax savings and increased retirement income. Employees can contribute up to a certain percentage of their salary each year, and the funds are invested in a variety of assets, such as stocks, bonds, and mutual funds.

Employers can offer a 457b plan as a way to attract and retain top talent, as well as to provide a valuable benefit to their employees.

A 457 plan is a type of tax-advantaged retirement savings account that certain state and local governments and tax-exempt organizations offer employees.

These plans are available to law enforcement officers, civil servants, and university workers, among others. They allow you to set aside pre-tax dollars in the account, reducing your income.

You can invest the money in the account and potentially watch it grow until you take withdrawals, at which point you'll pay taxes on what you take out. Depending on your employer plan, you may even have a Roth option where you contribute post-tax dollars and don't have to pay taxes when you take that money out.

There are two types of 457 plans, each with different rules.

The 457(b) Governmental Plan offers several benefits and features that make it an attractive option for employers. You can enroll at any time during employment, and all exempt employees and nonexempt employees (except for student workers) are eligible.

One of the key benefits of the 457(b) Governmental Plan is that it allows for high contributions. The 2025 contribution limits are $23,500, with an additional $7,500 if you're 50-59 or 64-69, and a maximum additional $11,250 if you're 60-63.

You can also take advantage of loans and rollovers. Loans are permitted, and you can have two loans outstanding at a time, a general purpose loan and a residential loan. Rollovers and transfers are also permitted from any eligible retirement plan, including 401(k)s and IRAs.

Here are the key features of the 457(b) Governmental Plan at a glance:

When choosing how to contribute to your 457 plan, you have two main options: pre-tax and after-tax contributions. Pre-tax contributions lower your taxable income, which could reduce your current income taxes.

You can set aside money by contributing pre-tax monies from your pay, deferring taxes on interest and earnings until you withdraw your money. This means you'll pay taxes when you withdraw money from your account, and federal withdrawal restrictions apply.

After-tax contributions to a Roth account mean you'll pay income taxes on your contributions now. This is a good option if you expect to be in a lower tax bracket in retirement.

With a Roth account, qualified distributions are tax-free. To qualify, you must wait at least five years from the first year you made a Roth contribution, and you must be at least 59½ years old, or the distribution must be due to death or disability.

Here's a summary of the key differences:

You can contribute to a 457 plan using paycheck deductions or employer contributions, with a single contribution limit of $23,000 in 2024, or 100% of your salary, whichever is less.

For participants 50 or older in governmental 457(b) plans, catch-up contributions are allowed, bringing the limit to $30,500.

The contribution limits for 457 plans vary based on age and plan type, with different limits for governmental and nonprofit plans.

Here's a breakdown of the 2024 contribution limits for 457 plans:

In 2025, the contribution limit for 403(b) and 457(b) plans will be $23,500, with additional limits for participants 50-59, 64-69, and 60-63.

There are two main types of 457 plans: 457(b) and 457(f). The 457(b) plan is the most common type, available to all employees of a state or local government entity, and allows for rollover privileges similar to those of a 401(k) or 403(b).

A 457(b) plan is subject to IRS contribution limits and taxation rules, and both employers and participants can contribute to it. You may also have the option to designate Roth contributions, which are made using after-tax dollars.

The 457(f) plan, on the other hand, is available only to highly compensated employees of non-governmental organizations, and has virtually unlimited contributions. However, the funds are not held in trust, and the rollover privileges are much more restricted.

Here's a breakdown of the main differences between 457(b) and 457(f) plans:

It's worth noting that 457(f) plans often come with a "golden handcuff" provision, which means that the benefit is tied to performance, service duration, or other metrics, and can be forfeited if certain conditions are not met.

To enroll in a 457b plan, you first need to choose how much you'd like to contribute per pay period as a dollar amount, percentage, or the maximum contribution amount. You'll also need to indicate when you want contributions to start.

If you don't want to contribute to the plan, you can click on the link in the blue box to continue with vendor selection without additional contributions. This allows you to move forward with choosing your investment providers without enrolling in the plan.

To direct your contributions to the same investment provider(s), you can choose to direct all contribution types (pre-tax and Roth) to the same provider(s). Then, enter the amount that should go to each provider.

Michigan has a unique set of enrollment requirements, so it's essential to understand the process.

To enroll in a Michigan school, you'll need to provide proof of residency, such as a utility bill or lease agreement, and complete the online application by the designated deadline.

Michigan schools have a relatively short application window, typically ranging from 2-4 weeks in the spring.

You'll need to submit required documents, including immunization records and birth certificates, to the school district.

Michigan law requires that all students have up-to-date immunizations before starting school.

If you're a non-resident student, you'll need to provide additional documentation, such as a parent's employment contract or a notarized affidavit.

Enrolling in the voluntary plans is a straightforward process. If you want to contribute to one or both, you'll need to choose how much you'd like to contribute per pay period as a dollar amount, percentage, or the maximum contribution amount.

To start, select the amount you want to contribute and indicate when you want contributions to begin. You can choose to contribute as little or as much as you like, and contributions can start at any time.

If you don't want to contribute to either plan, simply click on the link in the blue box labeled "Continue to vendor selection without additional contributions."

You'll also need to decide whether to direct all contribution types to the same investment provider(s). If so, enter the amount that should go to each provider.

To complete the enrollment process, open an account with the investment provider(s) you selected and choose your investments.

The 457(b) plan stands out from other plans like the 403(b) and 401(k) in its flexible withdrawals. You can withdraw funds from your 457(b) before age 59½ penalty-free if you're no longer employed by the plan sponsor.

Unlike 403(b) and 401(k)s, 457(b) plans don't have a 10% additional tax for early withdrawals, except for distributions attributable to a rollover from another type of plan or IRA. Governmental 457(b) plans are not subject to this tax.

While 403(b)s and 401(k)s allow for catch-up contributions for those 50 and over, governmental 457(b)s also offer bonus contributions within 3 years of normal retirement age. Some 403(b) plans even let employees who have worked for 15 years or more make additional contributions.

A SECURE Act 2.0 special catch-up provision starting in 2025 increases the annual catch-up contribution limit for employees ages 60 to 63 to the greater of $10,000 or 150% of the regular catch-up contribution.

USG has partnered with three retirement plan providers to manage your 403(b) and/or 457(b) accounts. These providers are Corebridge Financial, Fidelity Investments, and TIAA.

You can allocate your contributions to one or more of these retirement plan providers. Each provider offers USG's enhanced, four-tiered investment menu.

These investment menus feature a wide array of fund options. This diversity helps create a well-rounded retirement portfolio.

You can access more information about your investment options by visiting OneUsgConnect. From there, click Research Your Investments within Retirement@Work to learn more.