Are 401k and 457 Combined Contribution Limits?
When it comes to retirement savings, two popular options that individuals often consider are the 401k and the 457 plans. Both of these plans offer tax advantages and are designed to help individuals save for their retirement years. However, many people wonder whether the contribution limits for these plans can be combined. In this article, we will explore whether the 401k and 457 plans have combined contribution limits and provide answers to several related FAQs.
The 401k Plan:
A 401k plan is an employer-sponsored retirement savings plan that allows employees to contribute a portion of their pre-tax income to a designated account. The contributions and any earnings grow tax-deferred until withdrawal, typically during retirement. The funds can be invested in a selection of investment options, such as mutual funds or stocks, depending on the employer’s offerings.
The 457 Plan:
Similar to a 401k plan, a 457 plan is also an employer-sponsored retirement savings plan. However, it is designed specifically for public sector employees, such as those employed by state or local governments or certain nonprofit organizations. It offers similar tax advantages to a 401k plan, including tax-deferred growth and the ability to contribute pre-tax income. Like the 401k, the funds can be invested in various investment options.
Combined Contribution Limits:
While the 401k and 457 plans have many similarities, their contribution limits are not combined. Each plan has separate and distinct contribution limits set by the Internal Revenue Service (IRS). As of 2021, the annual contribution limit for a 401k plan is $19,500 for individuals under the age of 50, with an additional catch-up contribution of $6,500 for those aged 50 and above. On the other hand, the 457 plan also has a separate limit of $19,500, but it allows participants aged 50 and above an additional catch-up contribution of $6,500, similar to the 401k plan.
FAQs:
1. Can I contribute to both a 401k and a 457 plan?
Yes, if you’re eligible for both plans, you can contribute to both simultaneously. However, the contribution limits for each plan are separate.
2. Can I max out both my 401k and 457 plan contributions?
Yes, if you meet the eligibility criteria and can afford to contribute the maximum allowable amount, you can max out contributions in both plans individually.
3. If I have a 401k and a 457 plan, can I contribute the maximum amount to both?
While it’s technically possible, since the contribution limits are separate, it would require a substantial financial commitment to contribute the maximum amount to both plans.
4. Can I contribute to a 401k and a 457 plan at the same time?
Yes, if you are eligible for both plans and your employer offers them, you are allowed to contribute to both simultaneously.
5. Are the catch-up contribution limits the same for a 401k and 457 plan?
Yes, both the 401k and 457 plans allow individuals aged 50 and above to make a catch-up contribution of $6,500.
6. Can I roll over my 401k into a 457 plan?
No, you cannot roll over a 401k plan into a 457 plan. However, you may be able to roll over a 401k into an Individual Retirement Account (IRA) and then potentially into a 457 plan.
7. Are there any income limits for contributing to a 401k or 457 plan?
No, there are no income limits for contributing to either a 401k or a 457 plan. However, there may be limits based on your employer’s plan rules.
8. Can I contribute to a 401k plan from multiple employers?
Yes, if you have multiple employers that offer a 401k plan, you can contribute to each plan individually. However, the combined contributions must still adhere to the annual contribution limit.
9. Can I contribute to both a traditional and Roth 401k?
Yes, if the plan offers both options, you can contribute to both a traditional and Roth 401k. However, the combined contributions cannot exceed the annual contribution limit.
10. Can I have both a 401k and an IRA?
Yes, you can have both a 401k and an IRA. However, depending on your income level and tax filing status, your ability to contribute to a traditional IRA may be limited.
11. Can I take withdrawals from both a 401k and a 457 plan at the same time?
Yes, once you reach the eligible age and meet the plan’s requirements, you can take withdrawals from both a 401k and a 457 plan simultaneously.
12. Can funds from a 401k and a 457 plan be combined?
No, funds from a 401k and a 457 plan cannot be combined. Each plan is separate, and the funds must remain in their respective accounts.