| What Exactly Is A 457 Retirement Savings Plan |
| Articles - Retirement |
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It can be difficult to understand all the regulations about employer retirement plans. Many employees are familiar with 401k plans and 403b plans, most are less familiar with 457 plans. If you are trying to figure out just what is a 457 retirement plan, here are some key facts to help you.
It can be difficult to understand all the regulations about employer retirement plans. Many employees are familiar with 401k plans and 403b plans, most are less familiar with 457 plans. If you are trying to figure out just what is a 457 retirement plan, here are some key facts to help you. 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. What 457 plans have in common with 401k and 403b plans is the opportunity to defer taxes on pre-tax contributions to retirement savings. A 457 is a deferred compensation retirement plan that allows employees to set aside part of their income in a tax-deferred savings account. That means the money you set aside, and any interest or earnings that money accumulates, will not be taxed until retirement. 457 plans differ from 401k plans in that there is no minimum retirement age or early withdrawal penalty for 457 plans. Furthermore, independent contractors can be eligible to participate in 457 plans, while they cannot participate in 401k and 403b plans. Furthermore, 457 participants cannot make contributions to Roth IRAs the way participants in other plans can, though most 457 plans can be rolled over into an IRA account like 401k plans and 403b plans. If an employer offers both a 457 plan and either a 401k or a 403b plan, an employee may contribute to both. Legislation passed 2001 amended the rules governing contribution limits, allowing employees to make mandated maximum contributions to both plans. The law also provides methods by which 457 participants who are fifty years old or older can "catch up" with contribution limits. On the other hand, employers do not make contributions to 457 plans as they do with 401k or 403b plans. Some 457 plans are available to non-governmental organizations. The non-governmental 457b plan applies to employees meeting a designated compensation threshold determined by the employer. These plans allow high-paid employees and executives to defer income taxes on contributions made during their peak salary years. These plans are not eligible to be rolled over into IRAs or other types of plans. The 457f plan allows some non-profit organizations an opportunity to supplement retirement income for some employees. These plans do not carry contribution limits, but the contributions remain the property of the employer until they are distributed upon retirement. The contributions are only tax deferred only as long as the employee faces a "substantial risk of forfeiture", meaning the money remains available to the employer's creditors and the employee is required to meet vesting requirements to be eligible for distributions. The rules and regulations for retirement plans can be complicated. Whatever plan you might be able to participate in, get advice from a qualified person when planning your retirement strategy. But you be better able to make good choices for yourself when you know what is a 457 retirement plan. DISCLAIMER: This article is provided as information only and is not to be taken as financial advice. 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. |