The 457 plan is a type of non-qualified, tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pre-tax basis.A 457b plan provides you with the ability to save for retirement.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
- Ability to reduce your taxable income. You determine the amount of your 457b contributions (up to IRS-defined limits) through a participation agreement with your employer. Your contributions will be pre-tax, reducing your current taxable compensation. If your employer is a governmental entity, the 457b plan may also permit you to contribute on a Roth after-tax basis.
- Your investment earnings grow tax-deferred. The earnings in your account are reinvested where they grow tax deferred. If your 457b plan is sponsored by a governmental employer, amounts typically are subject to income tax when withdrawn from the plan. Special rules apply to withdrawals from a Roth 457b plan. If your 457b plan is sponsored by a nonprofit organization, withdrawals are subject to income tax when they are paid or made available to you.
- Choose from a menu of investment funds. Typically, the plan will permit employees to select investment funds offered under it. Diversify your investments for the mix of growth and safety you feel most comfortable with.
- Portability. If you leave your job and your 457b plan is sponsored by a governmental entity, you may be able to roll your 457b account into another employer’s eligible retirement plan, traditional IRA or Roth IRA. You also have the option leave your money in your Plan or cash out. If you cash out, the distribution will be subject to income tax.
- Catch-up contributions. If you are a longer service employee, you may be able to contribute beyond the general IRS limits. If you are at least age 50 and your 457b plan is sponsored by a governmental entity, you may have another catch-up contribution available.
- Withdrawals from your 457b account (other than any rollover contributions made to a 457b plan sponsored by a governmental employer) are not subject to the IRS 10% premature distribution penalty tax.
- Employees who are looking for additional opportunities for retirement savings through a supplemental plan offered by their governmental or tax-exempt employer.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
