A 457 pension plan, commonly known as a 457(b) plan, is a type of tax-advantaged retirement savings plan in the United States. It is typically offered to employees of state and local governments, as well as certain non-profit organizations. The name “457” refers to the section of the Internal Revenue Code that governs this type of plan.
In a 457(b) plan, eligible employees can contribute a portion of their pre-tax income to the plan, and these contributions are not subject to federal income tax at the time they are made. The contributions, along with any potential earnings, grow tax-deferred until the employee withdraws the funds, usually during retirement.
One notable feature of a 457(b) plan is that it may allow for additional catch-up contributions for participants who are within a few years of their retirement age. This can provide an opportunity for individuals to contribute more to their retirement savings as they approach the end of their careers.
While 457(b) plans share some similarities with other retirement plans like 401(k) plans, they are distinct in that they are designed specifically for governmental and certain non-profit employees. The rules and regulations governing 457(b) plans can vary, so participants should carefully review the specific details of their plan to ensure compliance and maximize the benefits of the program.