How are the 457(b) and the SRA similar?
Both plans have the following in common:
- Tax-deferred contributions and earnings.
- The same investment fund options.
- The same income options at any age once terminated or retired.
- The ability to take a loan.
- Cash withdrawals and rollovers at any age once terminated or retired.
How are the 457(b) and the SRA different?
- The IRS 10% penalty on withdrawals made prior to age 59 ½ does not apply to the 457(b), but it does apply to the SRA.
- The SRA allows cash withdrawals as a current member of the faculty or staff if you become disabled, in the event of financial hardship, or at age 59 ½ or older. These options are not available under the 457(b).
- The 457(b) allows cash withdrawals as a current member of the faculty or staff at 70 ½ or older, or as a one-time withdrawal if your account balance is no more than $5,000 and you have made no contributions to the plan during the two years prior to the distribution.
Can I contribute to the 457(b) and later transfer it to an SRA in order to get access to the SRA cash withdrawal options?
No. Federal regulations do not permit direct transfers between a 457(b) and an SRA. However, once you have retired or terminated employment, you may rollover the 457(b) to another eligible retirement plan.
The SRA may be of interest if:
You want the flexibility to cash out the SRA before you retire or terminate employment due to:
- Disability
- Financial hardship
- At age 59 ½ or older
The 457(b) may be of interest if:
- You already contribute the maximum allowable to the SRA under the U-M Retirement Plan and want to save more.
- You do not need to cash out the accumulations before you retire, terminate employment or reach age 70 ½.
- You anticipate taking a cash withdrawal before age 59 ½ (because you retire, terminate, or take the one-time withdrawal) and you want to avoid the IRS 10% penalty.
457(b) vs. SRA |
Plan Feature |
457(b) |
SRA |
In-service disability withdrawal? |
No |
Yes |
In-service hardship withdrawal? |
No |
Yes |
In-service withdrawal at age 59 ½? |
No |
Yes |
In-service withdrawal at age 70 ½? |
Yes |
Already available at 59 ½ |
Subject to minimum distribution at 70 ½? |
Yes |
Yes |
Subject to IRS early withdrawal penalty? |
No |
Yes |
Loans |
Yes |
Yes |
Income tax is due on withdrawals. An IRS 10% penalty generally applies to withdrawals made prior to age 59 ½ on the SRA but not the 457(b). Consult with a qualified tax advisor for information on taxation of distributions and the IRS early withdrawal penalty. If you default on the loan, income taxes are due, and an IRS early withdrawal penalty may apply if you are under age 59½ on the SRA loan.
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