You can save more beyond the Basic Retirement Plan with the 403(b) Supplemental Retirement Account (SRA) and the 457(b) Deferred Compensation Plan. If you are not eligible for the Basic Retirement Plan, the 403(b) SRA and 457(b) can provide a good vehicle to save for retirement. You can contribute up to $38,000 by maxing out both plans — or, if you turn 50 or older this year, $50,000. You can split your contributions any way you prefer.
Comparing the 403(b) SRA and 457(b) Plans at a Glance
|Plan Feature||457(b)||403(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? (Once retired or terminated from U-M)||Yes||Yes|
|Subject to IRS early withdrawal penalty?||No||Yes|
Notes: Income tax is due on withdrawals. An IRS 10% penalty generally applies to withdrawals made prior to age 59 ½ on the 403(b) 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 403(b) SRA loan.
How Are the Plans Similar?
- You can make tax-deferred contributions that are taxed upon distribution.
- You can make after-tax Roth contributions with tax-free qualified distributions.
- The same investment fund choices with many low-cost mutual funds and annuities.
- 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 Plans 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 403(b) SRA.
- The 403(b) 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 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.
You cannot contribute to the 457(b) and later transfer it to a 403(b) SRA in order to get access to the SRA cash withdrawal options. However, once you have retired or terminated employment, you may rollover the 457(b) to another eligible retirement plan.
You cannot contribute to the 403(b) SRA and later transfer it or roll it over to the 457(b) in order to avoid the 10% penalty on withdrawals prior to age 59½ on the 403(b) SRA amounts.
The 403(b) SRA may be of interest if:
You want the flexibility to cash out the SRA before you retire or terminate employment due to:
- Financial hardship
- At age 59 ½ or older
The 457(b) may be of interest if:
- You already contribute the maximum allowable to a U-M 403(b) SRA or to another retirement savings 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.