Do 457 plans have required minimum distributions?
When it comes to retirement planning, understanding the nuances of different retirement accounts is crucial. One such account is the 457 plan, which is a popular tax-deferred retirement savings account available to employees of state and local governments. One common question that arises regarding 457 plans is whether they have required minimum distributions (RMDs). In this article, we will delve into this topic and provide a comprehensive overview of the required minimum distributions for 457 plans.
Understanding Required Minimum Distributions (RMDs)
Required minimum distributions (RMDs) are the amounts that individuals must withdraw from their retirement accounts each year after reaching a certain age. For traditional IRAs and 401(k)s, the RMDs are generally required starting at age 72 (previously 70½). However, the rules for 457 plans can be slightly different.
457 Plan RMDs
Under the tax code, 457 plans are subject to RMDs, but the rules governing when these distributions must begin are not as straightforward as they are for IRAs and 401(k)s. Here’s a breakdown of the key points regarding RMDs for 457 plans:
1. Eligibility for RMDs: Unlike IRAs and 401(k)s, 457 plan participants are not required to take RMDs until they either retire or reach age 72, whichever comes first. This means that individuals can continue to contribute to their 457 plan and defer RMDs until they retire or reach the age of 72.
2. RMD Calculation: Once the RMD age is reached, the RMD is calculated using the same life expectancy tables that apply to IRAs and 401(k)s. The calculation involves dividing the account balance by the appropriate life expectancy factor provided by the IRS.
3. Substantially Equal Periodic Payments (SEPPs): Participants in 457 plans can also use the Substantially Equal Periodic Payments (SEPP) rules to take RMDs. This option allows individuals to take RMDs based on their life expectancy or the joint life expectancy of the participant and their designated beneficiary.
4. Impact on Taxation: As with other retirement accounts, RMDs from 457 plans are subject to income tax. It’s important to factor in the tax implications when planning for RMDs.
Conclusion
In conclusion, while 457 plans do have required minimum distributions (RMDs), the rules governing when these distributions must begin are more flexible than those for IRAs and 401(k)s. Participants can defer RMDs until they retire or reach age 72, providing more time to manage their retirement savings. However, it’s essential to plan for RMDs and understand the tax implications to ensure a smooth transition into retirement.
