Understanding the Yale 457(b) Plan

by | Jun 18, 2024

One of the biggest challenges successful individuals face is understanding how to save for retirement in the most tax efficient way. In this article, we share some of the key features of the 457(b) plan, a retirement savings vehicle that many high earners take advantage of as they plan for retirement.

If you are planning to retire someday, it is important to develop a retirement savings strategy that can optimize the value of your savings. One effective way of doing so might be to contribute to a 457(b) plan.

What is a 457(b) retirement plan?

A 457(b) retirement plan is a type of deferred compensation plan that allows you to set aside a portion of your earnings for use at a future date. Generally, they are available for employees of state and municipal governments, as well as tax-exempt entities.

If you are a Yale employee (both faculty and staff), you may have a valuable opportunity to contribute to the Yale 457(b) plan to help you save for retirement. The Yale 457(b) retirement plan is designed to assist eligible faculty and staff to accumulate additional tax-deferred retirement savings.

According to Yale University, eligible participants must satisfy the following requirements:

  • Tenured Professor, Tenured Associate Professor or
  • Professor on continuing appointment in the School of Medicine or
  • Faculty or staff with base salary of 1.5 times the Social Security Wage Base or greater

Contributing to the Plan

For 2024, the annual contribution limit for the 457(b) plan is $23,000, with an additional catch-up contribution of $7,500 for those aged 50 or older. These limits are separate from those of other retirement plans like 401(k)s and IRAs, allowing you to save more for retirement.

Contributions to the Yale 457(b) plan are made on a pre-tax basis, reducing your taxable income for the year. The investments within the plan grow tax-deferred, meaning you won’t pay taxes on any earnings until you withdraw the money in retirement.

The Yale 457(b) plan offers a variety of investment options, including mutual funds and target-date funds, allowing you to create a diversified portfolio that aligns with your risk tolerance and retirement goals.

Comparing the 457(b) to Other Retirement Plans

While the 457(b) plan shares some similarities with other retirement plans like 401(k)s and 403(b)s, there are some key differences:

  • 457(b) plans are generally only available to government and tax-exempt organization employees, while 401(k)s are more common in the private sector.
  • 457(b) plans often have more flexible distribution rules, allowing participants to withdraw funds before age 59½ without the 10% early withdrawal penalty that applies to 401(k)s and IRAs.
  • Some 457(b) plans may allow for larger catch-up contributions for participants nearing retirement age.

Distributions from the Plan

Upon your severance or retirement from Yale, take the time to develop a strategy for which accounts cash flow should come from to manage your taxes. The Yale 457(b) plan may allow you to elect to receive payments immediately from the plan or defer distributions to a later date. The plan may offer the following distribution options:

  • Lump sum distribution
  • Fixed period Annuity/Installment
  • Lifetime annuity
  • Required Minimum Distribution (RMD)
  • Direct transfer to another plan that accepts transfers

Work With Us

Many of our clients are university professors who come to us for advice on retirement planning and additional savings opportunities through the Yale 457(b) plan. 

At Kreitler Financial, we work with successful individuals to help them achieve their financial and retirement goals. We strongly believe in the importance of seeking professional guidance when making decisions about your retirement savings. Our team of experienced advisors can help you navigate the complexities of the Yale 457(b) plan and develop a personalized strategy that aligns with your unique needs and goals. We invite you to contact us today to learn more about how we can help you make informed decisions about your Yale 457(b) plan and take control of your financial future.

Kreitler Financial is an independent entity and is not affiliated with, nor endorsed by, Yale University.

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