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How to Use Your Massachusetts SMART Plan to Save for Retirement


If you meet the qualification requirements to contribute to a Massachusetts SMART Plan, or 457 plan, you definitely want to take advantage of that. A SMART plan is a defined contribution plan much like a 401(k), but it has different rules about catch-up contributions, early withdrawals, and hardship distributions. 

In Massachusetts, tax code 457 allows state and local governments and some nonprofit organizations to set up defined contribution plans. While these 457 plans aren’t common, they offer some important advantages over traditional 401(k)s. We recommend talking to our financial advisors to help you manage your 457 and learn how to make the most of it.

What Is the Massachusetts SMART Plan?

The SMART plan allows you to contribute pre-tax earnings to your retirement plan. The investments grow tax-deferred until you take distributions during retirement. Your employer must be a state or local government agency, although some nonprofit organizations also qualify under the 457 tax code. You may even participate as an independent contractor, which is not the case for a 401(k).

The Massachusetts deferred compensation SMART plan allows participants to contribute more to the plan when they’re nearing retirement. In fact, there is a double limit catch-up provision that allows you to compensate for the years in which you didn’t contribute to the plan even though you were eligible to do so. In contrast, the catch-up contributions for a 401(k) don’t take missed contribution years into account.

How the MA SMART Plan Works

The MA Smart plan works like a regular 401(k). You set up your retirement account through your employer. You contribute to the account using pre-tax earnings. This allows your investment to grow tax-free. You can actually receive the money before age 59 ½ without paying a penalty. But whenever you withdraw the income, you will pay income tax on it.

Difference between Massachusetts Deferred Compensation SMART Plan and 401(k)

There are several fundamental differences between the SMART plan and a 401(k). While they’re both tax-deferred retirement saving plans, the SMART plan has different rules about contributions, withdrawals, and distributions.

  • SMART plans are only available to government and some nonprofit employees.
  • SMART plans allow double catch-up contributions.
  • There is no penalty for early withdrawals with a SMART plan.
  • The SMART plan specifies hardship distribution rules.
  • Independent contractors can participate in 457 plans.
  • Employees nearing retirement can defer accumulated sick pay, vacation pay, and back pay.

If you’re eligible to use a 457 retirement plan, we recommend taking advantage of it. Our financial advisors can work with you to select the best investments for you inside of your Massachusetts SMART plan and take advantage of the contribution and distribution rules.

FAQs about the MA SMART Plan

Who Can Use an MA SMART Plan?

Tax code 457 establishes the Massachusetts SMART plans. Under that tax code, local and state governments can set up a SMART plan for their employees. Some nonprofit organizations are also eligible to take part under the SMART plan rules.

Is the SMART Plan Better Than My 401(k) or IRA?

The SMART plan offers some advantages your 401(k) does not have. For example, there is no early withdrawal penalty. If you meet the requirements, you can take advantage of the double catch-up contribution rules. Even independent contractors can participate in a 457. If your employer offers a SMART plan, you can still contribute to your 401(k) as well and max out your contributions to both retirement plans.

Can I Have a SMART plan and a 401(k)?

Yes. You most definitely can take advantage of building retirement savings through the SMART plan and your 401(k). The biggest challenge with multiple retirement plans is that you need to manage both. That’s what our financial advisors are here for. We can manage your portfolios and make recommendations that match your investment goals and timelines.

Let Us Help You Manage Your SMART Plan

If your employer offers participation in a Massachusetts SMART plan, we highly recommend taking advantage of it. We can help you select the right investments for you inside of your SMART and make sure you take advantage of all available tax deductions. Call us today and make an appointment to discuss your retirement plans.

The State of Massachusetts has not approved, endorsed, or authorized this presentation. Contact the State Administration for complete details regarding eligibility for benefits. 2022-143328 Exp 09/24