In addition to pre-tax contributions, your employer's 457(b) plan may also permit Roth contributions, which are made on an after-tax basis.
What Is a Roth 457(b) Plan?
A Roth is a contribution option within a 457(b) plan. In a traditional 457(b) plan, participants can make pre-tax contributions that are then taxed along with the earnings in retirement. Roth 457(b) contributions differ because they are made after-tax and are not taxed when the assets are withdrawn. Earnings may also be withdrawn tax-free if certain criteria are met.
How Roth 457(b) Plans Work
Roth contributions and associated earnings can be withdrawn tax-free in retirement if the requirements for a "qualified distribution" (also known as withdrawal) are met. If the Roth contribution option is available in your 457(b) plan, you can designate a portion or all of your contributions to the plan as Roth.
When Can Roth Assets Be Withdrawn from a 457(b) Plan?
Distributions of Roth assets (contributions and associated earnings) are qualified if:
- A period of five years has passed since January 1 of the year in which the first contribution (including roll-ins) was made to your Roth account.
- You are at least 59½ years old (or disabled or deceased).
If the requirements for a qualified distribution are not met, and the assets are not rolled into another eligible plan, the earnings portion of any distribution will be taxable.
Are You an Employer? Offer a 457(b) Plan with Roth Contributions
If you’re looking to provide a Roth contribution to your employees, contact us.
Are You an Employee? Enroll Now
You should contact your employer or MissionSquare Retirement to confirm that your plan permits Roth contributions. If you’ve already enrolled in your employer’s 457(b) plan, you can use the 457(b) Deferred Compensation Plan Amount of Deferral Change Form to start making Roth contributions.
Learn more: 457(b) Plan Roth Deferrals
Benefits of Roth Contributions
In addition to potentially tax-free distributions in retirement, making Roth contributions to your 457(b) plan has the following benefits:
- Higher After-Tax Contribution Limits Than Roth IRAs — 457(b) plans allow for greater after-tax savings. While Roth IRAs only allow a contribution of up to $7,000 for 2024, Roth contributions in a 457(b) include both employee and employer contributions with a limit of $23,000 in 2024.
- Eligibility at All Income Levels — Unlike Roth IRAs, everyone with earned income is eligible to make Roth contributions to their employer's 457(b) plan.
- Tax Planning and Flexibility — Having both pre-tax assets and Roth assets available in retirement can be a valuable benefit, allowing you to choose the source of funds most advantageous to your situation at the time of the distribution.
Which Is Better: Roth or Pre-Tax Contributions?
The Roth Analyzer will help you evaluate the benefit of making Roth contributions to your 457(b) plan. Ultimately, you may find that contributing a combination of Roth and pre-tax deferrals makes the most sense. Everyone's situation is different, and you may want to consult a tax advisor before making a decision.
Opening a Roth 457(b)
If you’re looking to open a 457(b) plan, to provide a Roth contribution to your employees, or both, contact us.
Is a 457(b) Plan an IRA?
A Roth IRA is different from a Roth contribution option in a 457(b) plan. The Roth 457(b) is part of the 457(b) plan, and a Roth IRA is an entirely separate retirement account.
Roth 457(b) vs. Roth IRA
When making Roth contributions as part of a 457(b) plan, those contributions count toward annual maximum contribution limits. If you have a Roth IRA, you can contribute to that separately, up to the annual limit.
There are income requirements for Roth IRAs. If you earned more than $161,000 as a single person in tax year 2024, or $240,000 for married and filing jointly, then you can’t contribute to a Roth IRA.
The Roth contribution option on a 457(b) plan has no income limit.
Roth 457(b) Plan Contribution Limits
Limits for Roth contributions are combined with those of the 457(b) plan’s pre-tax contributions. Any combination of pre-tax or after-tax contributions can be made up to the limits.
See the annual contribution limits for several types of plans.
