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THE 457(b) PLAN
FOR STATE AND LOCAL GOVERNMENTS
457(b) retirement plans, also known as eligible deferred compensation plans, are similar to the popular 401(k). While maintaining the same tax-deferred advantages, the difference lies in that these plans are restricted to certain state and local governments and non-governmental entities tax-exempt under IRC 501.
Participating employees defer compensation and instead have it contributed to the plan on their behalf. These contributions are made on a pre-tax basis—no income tax is due on amounts contributed until withdrawals or distributions are made. For those wishing to contribute in addition to their employees’ regular deferrals, the 457(b) allows for employers to make contributions for the benefit of their employees as well.
To ensure you qualify for a 457(b) retirement plan we recommend you partner with a well experienced pension consultant, or contact the IRS.
QUICK GUIDE
- Can only be setup by certain state and local governments and 501(c)(3) tax-exempt organizations
- Participant's retirement benefits based on participant's account balance
- Allows employees and independent contractors to contribute to their own retirement by deferring compensation, up to $16,5001 and an additional $5,5001 if age 50 or older
- May allow employees and independent contractors to make additional contributions for 3 years prior to normal retirement age
- Plan may allow employer contributions
- The maximum annual contributions are the lesser of 100% of includible compensation or $16,5001 plus catch-up contributions or more for 3 years prior to normal retirement age
- May cover all employees and independent contractors in the plan