Q:

What are the rules for withdrawing from a 457 plan?

A:

Quick Answer

457 plans allow for early withdrawal without the standard 10 percent penalty tax applied to other types of retirement plans, according to Nationwide Mutual Insurance Company. However, though the typical penalty does not apply to early withdrawals, the money is subject to standard income tax rates and must be reported to the IRS as income. This rule only applies to early withdrawals, which are withdrawals that take place before the account holder reaches the official retirement age of 59.5.

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Full Answer

Though the penalty for withdrawing from a 457 plan before reaching the minimum age of 59.5 isn't as harsh as it is for some other types of retirement plans, it is not necessarily a good idea to pull funds from this account before retirement. The compounding interest on a 457 plan requires a large balance to produce a good result. Holding off on withdrawals before retirement will help the account holder have the maximum account benefit when they do retire, advises CNN Money.

Regular, non-taxable withdrawals from the 457 account must occur only after retirement. Workers age 70.5 and above may be able to draw from the account even if they are still working if they have some sort of emergency, though individual account rules may differ on this point.

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