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| What Exactly Are 457 Retirement Plans |
| Written by Rick De, Tommy Grape, Ally Sims, Corby Calzoo |
| Tuesday, 20 July 2010 07:15 |
|
It can be a challenge to stay informed about all the intricacies employer retirement plans. Many are familiar with 401k plans and 403b plans, but most are unfamiliar with 457 plans. Just exactly what is a 457 retirement plan? Here is some helpful information to guide you in answering that question.
It can be a challenge to stay informed about all the intricacies employer retirement plans. Many are familiar with 401k plans and 403b plans, but most are unfamiliar with 457 plans. Just exactly what is a 457 retirement plan? Here is some helpful information to guide you in answering that question. Essentially, the idea of a 457 plan is similar to that of a 401k or 403b plan. The main difference between these plans is that 401k plans are generally meant for employees of private companies, 403b plans are generally meant for non-profit employees, and 457 plans are generally meant for governmental employees. There are other differences, however, so it is important to pay close attentions when face with retirement plan options, even if have experience with other types of plans. Like 403b and 401k plans, 457 plans allow employees the chance to defer taxation on pre-tax contributions they make to their retirement savings. It is is a deferred compensation plan through which employees put aside some of their income to in a tax-deferred retirement account. This means that employees can save money without paying income tax on it, or on its earnings, until retirement. There are several notable differences between 457 plans and other plans. In 457 plans there is no minimum retirement age and therefore no early withdrawal penalty as there is with 401k plans. Also, independent contractors can be allowed to participate in 457 plans, while they cannot in 401k and 403b plans. Further, 457 plan participants cannot contribute to Roth IRA accounts as participants in the other plans can. Still, 457 plans can generally be rolled over into IRA accounts just as with 401k and 403b 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. There are some versions of the 457 plan available to non-governmental non-profit organizations. The non-governmental 457b plan is generally applicable to employees meeting a minimum compensation threshold set by the employer. These plans allow highly paid employees to defer state and federal income taxes on contributions made at the height of their earning capabilities. These plans cannot be rolled over into other types of retirement 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. 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. About the Author: 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. |