What is a Section 457 retirement plan?


Quick Answer

A section 457(b) retirement plan is a deferred compensation option available to some local and state governments and non-governmental organizations that are tax-exempt through section 501(c) of the Internal Revenue Code, according to the Internal Revenue Service. Participants in an eligible 457(b) plan may defer income taxation on retirement savings.

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Full Answer

Only local or state governments or section 501(c) tax-exempt entities may set up a 457(b) retirement plan, as stated by the IRS. Employees, through salary reductions, or employers may contribute up to the limit each year. For the tax year 2015, this limit is $18,000. The advantages of taking part in this type of plan include deferment of tax liability on contributions as well as earnings on that money.

A governmental 457(b) plan may be changed to permit designated contributions to a Roth IRA as well as the rollover of money in the plan to designated Roth IRA accounts, states the IRS. Many participants decide to do this in order to alter the taxation status of their retirement funds.

For more information about a 457(b) plan, the IRS has issued Publication 4484, which provides information about selecting a retirement plan for employees in government and tax-exempt entities, notes the IRS.

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