457 plans — Retirement savings benefits for governmental employees

A 457(b) plan is a supplemental retirement plan for employees who meet eligibility criteria. Typically, if your employer is a governmental entity, state or local law will determine who is eligible to participate. If your employer is a tax-exempt organization, only highly compensated employees and select management may participate in the plan.

Key Features

A 457(b) plan provides you with the ability to save for retirement.

• Ability to reduce your taxable income. You determine the amount of your 457(b) contributions (up to IRS-defined limits) through a participation agreement with your employer. Your contributions will be pre-tax, reducing your current taxable compensation. If your employer is a governmental entity, the 457(b) plan may also permit you to contribute on a Roth after-tax basis.
• Your investment earnings grow tax-deferred. The earnings in your account are reinvested where they grow tax deferred. If your 457(b) plan is sponsored by a governmental employer, amounts typically are subject to income tax when withdrawn from the plan. Special rules apply to withdrawals from a Roth 457(b) plan. If your 457(b) plan is sponsored by a nonprofit organization, withdrawals are subject to income tax when they are paid or made available to you.
• Choose from a menu of investment funds. Typically, the plan will permit employees to select investment funds offered under it. Diversify your investments for the mix of growth and safety you feel most comfortable with.
• Portability. If you leave your job and your 457(b) plan is sponsored by a governmental entity, you may be able to roll your 457(b) account into another employer’s eligible retirement plan, traditional IRA or Roth IRA. You also have the option leave your money in your plan or cash out. If you cash out, the distribution will be subject to income tax.

Features unique to a 457(b) plan to consider:

• Catch-up contributions. If you are a longer service employee, you may be able to contribute beyond the general IRS limits. If you are at least age 50 and your 457(b) plan is sponsored by a governmental entity, you may have another catch-up contribution available.
• Withdrawals from your 457(b) account (other than any rollover contributions made to a 457(b) plan sponsored by a governmental employer) are not subject to the IRS 10% premature distribution penalty tax.