457(b) Plan
What Is a 457(b) Plan?
A 457(b) plan is a tax-advantaged retirement savings plan offered primarily to state and local government employees and certain nonprofit workers. The plan allows participants to defer a portion of their salary into a retirement account that grows tax-deferred.
457(b) plans are similar to other employer-sponsored retirement plans but include unique withdrawal rules.
Why It Matters
The 457(b) plan provides public sector employees with a way to build retirement savings while reducing taxable income during their working years.
One distinctive feature is that withdrawals may be allowed after leaving employment without the early withdrawal penalty that applies to many other retirement accounts.
How a 457(b) Plan Works
Employees contribute through payroll deductions.
Common features include:
- tax-deferred salary contributions
- employer contributions in some cases
- diversified investment options
- retirement-focused withdrawal rules
Funds accumulate and grow based on investment performance.
457(b) Plan vs 401(k)
- Both allow tax-deferred retirement contributions.
- 457(b) plans often allow withdrawals after leaving employment without certain early withdrawal penalties.
FAQs About 457(b) Plans
Who qualifies for a 457(b)?
Government employees and some nonprofit workers.
Can you contribute to multiple retirement plans?
In some cases, individuals may contribute to both a 457(b) and another plan.
Are withdrawals taxed?
Yes, traditional withdrawals are typically taxed as income.
Related Terms
