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If someone has a Roth 457b plan, they're allowed to withdraw all the cash tax-free after they no longer work for the employer (as long as it's a qualified distribution).

But if someone Still Works for that employer, can they withdraw their Contributions ONLY (without penalty) since it is a "Roth account"?

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I don't think it's true that "If someone has a Roth 457b plan, they're allowed to withdraw all the cash tax-free after they no longer work for the employer." While it is true that withdrawals are permitted after severence from employment", I don't see anything in the 457b rules that exempt anyone from the general rules for Designated Roth Account Distributions which state that any withdrawals that don't meet the requirements for qualified distributions are taxed.

It appears that the only distributions allowed from 457b plans while still employed (whether from designated roth contributions or not) are for unforseen emergencies. There doesn't appear to be any exception for designated Roth acounts.

Also there are big differences from non governmental 457 and government 457 plans.

Last, all of this is contingent on the fact that I didn't actually deep dive into the code or regs themselves.

Another link: https://www.irs.gov/retirement-plans/irc-457b-deferred-compensation-plans

  • I found this on the Nevada state plan page: How are Roth 457(b) distributions taxed if they are not qualified? If a distribution is not ‘qualified’, the portion of the distribution attributable to the Roth contributions, termed ‘basis’ by the IRS, is not taxable since it was taxed at the time it was contributed to the Plan. The earnings portion (if any) is taxable. The allocation between the basis and taxable earnings is determined on a pro-rata basis when distributed. – Tom Jan 3 at 1:59
  • However, the IRS says: withdrawals permitted after severance from employment,must start receiving distributions by April 1 following the later of year of retirement or attainment of age 70½, plan may permit loans and distribution for unforeseen emergency or small inactive accounts. They conflict so I'm not sure whether Contributions can actually be withdrawn tax free. – Tom Jan 3 at 2:03
  • That sounds more accurate, but note that doesn't mean the distribution is tax free after leaving employment, just the contributions. The earnings are taxable, essentially losing the beneficial Roth treatment. Basically it's standard IRS stuff. You have to be very careful with the wording and what qualifies. The questions in that link essentially align with my answer. – T. M. Jan 3 at 2:06
  • Basically you have two things going on at once. 1. Whether someone is separated from service or not. 2. Whether they are 59.5 yet or not. If you're not separated from service you're limited to emergencies and loans if the plan allows it. If you are, the taxation of distributions still depends on how old you are to meet qualified rules. – T. M. Jan 3 at 2:09
  • Okay I think I understand... So if I leave service and am 59.5 I can take the Entirety tax-free. But if I leave service and am under 59 I can only take the Contributions? (hence it still functions as a "Roth" as expected).... And if I haven't left service I can only take out Loans. But that still all conflicts with the initial comment I made about the Nevada plan, it said you can take Non-Qualified Contributions without penalty, which was the crux of the matter. – Tom Jan 3 at 3:13

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