457 Plans: What is a 457?

The 457(b) plan is a type of nonqualified, tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. Church organizations are not eligible for the 457 plan.

When an employer provides a 457(b) plan then employees, and independent contractors if listed as eligible under the plan, defer compensation into it on a pre-tax basis. The deferrals can also be made after tax if the employer elects to allow Roth contributions. The accounts under a 457(b) plan can be established as either annuity contracts or custodial accounts. The funds must be held in trust, although annuity accounts and custodial accounts are deemed to be trusts so a specific trust does not have to be established.

457(b) plans are not subject to universal availability and can be offered to key personnel or to all personnel at the employer’s discretion. Most public schools do not limit participation in the plan.

The annual contribution limits are not aggregated between the 403(b) and the 457(b) plan so many plan sponsors offer both plans to their employees to increase the ability of their employees to save for retirement.

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