Governmental and other nonprofit employers, such as nonprofit hospitals, can offer 457 plans to help you save for retirement. However, you're limited to accessing your money in certain circumstances. On the bright side, no matter when you take a distribution, you're only responsible for the income taxes on the distribution.
Severance from Employment
Once you leave your job, you can take money out of your 457 plan. Unlike other plans, such as IRAs or 401(k)s, you won't be penalized even if you're under 59 1/2 years old. For example, if you take a $15,000 distribution, you're only responsible for paying the income taxes on the $15,000, and you don't have to pay the 10 percent early withdrawal plan. However, just because you can take a distribution without penalty doesn't mean you should. Consider keeping the money in the 457 plan or rolling it to another qualified retirement plan to maintain the tax-sheltered growth.
Some 457 plans will permit you to take a hardship distribution in the event that you face an unforeseeable financial emergency. If you plan wants to allow for hardship distributions, the plan must clearly state what situations will qualify as an "unforeseeable emergency." Therefore, what will qualify as a financial hardship can differ from plan to plan. For example, one 457 plan might permit hardship distributions for funeral expenses or if your home burns down while another 457 might not permit hardship distributions at all.
When You're 70 1/2
If you're still working when you're 70 1/2 years old — hey, it could happen — you've got to start taking minimum distributions in that year. These distributions are taxable and are not eligible to roll them over into another account. The minimum amount you have to withdraw is based on the value of your account as of December 31 of the previous year and your age at of the end of the year.
Death of the Account Holder
If you have a 457 plan and you die, your beneficiary can take distributions from the plan immediately. For example, if you die and name your spouse as the beneficiary, your spouse can immediately withdraw as much money as needed, for any reason, and without penalty. However, it will still be counted as taxable income. Similarly, if someone else dies and names you as the beneficiary of the 457 plan, you can take distributions from the plan immediately.
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