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These days it is difficult to keep track of the all the rules regulating retirement plans. While some workers are familiar with 401k plans or 403b plans, fewer are familiar with 457 plans. If you just thought to yourself, “what is a 457 retirement plan, ” you are not alone. Here is some basic information to help you answer that question.

The concept of 457 plans is essentially the same as that of 401k or 403b plans. The primary difference between the plans is that 401k plans are meant for private employees, 403b plans are meant for non-profit and education employees, and 457 plans are meant for city, state, and other governmental employees. There are some key differences between these plans, though, and it is important to understand them if you are faced with options for your retirement savings.

Like 401k and 403b plans, 457 plans provide employees the opportunity to defer taxation on retirement savings through pre-tax contributions. A 457 plan is a deferred compensation plan in which employees can set aside a portion of their income to put into a tax-deferred retirement savings account. That means an employee can put aside money without paying taxes on it, or any additional money it earns, until retirement.

A key difference between 457 plans 401k plans is that there is no minimum retirement age for 457 plans and no penalty for early withdrawal as there is with 401k plans. Also, 457 plans can apply to independent contractors as well as employees, which is not true of 401k and 403b plans. Also, while 401k and 403b participants can usually make contributions to a Roth IRA plan, 457 participants cannot. However, a 457 plan can be rolled over into an IRA just as with other plans.

When an employer offers a 457 plan as well as either a 401k or a 403b plan, employees are allowed to contribute to both. Legislation passed 2001 changed the regulations about contribution limits so that employees can now make the mandated maximum contributions to both plans. The law also allows two ways in which 457 participants over fifty can “catch up” with contribution limits, but employers do not contribute to 457 plans like they do with 401k or 403b plans.

Non-governmental organizations can participate in some forms of 457 plans. Non-governmental 457b plans are available for employees earning at or above designated salary thresholds set by the employer. These plans allow executives, directors, and other highly paid employees to defer state and federal income tax on contributions they make during their peak earning years. Such plans are not allowed to be rolled over into IRA plans.

457f plans allow some non-governmental organizations to supplement retirement income for their employees. There are no contribution limits with these plans, though the contributions remain the employer’s property until retirement. Tax-deferment on these plans only lasts as long as employees face a “substantial risk of forfeiture”, which means the money is available to any of the employer’s creditors and the employee has vesting requirements to be eligible for distributions.

There are a lot of complex regulations about retirement accounts. Whatever plan your employer might offer, it is important to seek out qualified advice when planning your contributions and plan participation. But you be much better equipped to make solid choices for yourself if you know just what is a 457 retirement plan.

Learn what the different 457 retirement plan, 457 a, 403b, 403 b retirement are by looking online. There you will discover all you need to know about 457, 457 plans, plan 457 plans too.

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