A 457(b) plan is a type of tax-advantaged retirement plan for state and local government employees, as well as employees of certain non-profit organizations. It is a nonqualified, tax-advantaged deferred-compensation retirement plan that allows employees to defer income taxation on retirement savings into future years. Here are some key characteristics of a 457(b) plan:
- The plan is offered only to public service employees and employees at tax-exempt organizations.
- Participants are allowed to contribute up to 100% of their salaries up to a dollar limit for the year.
- Investment options available in 457(b) plans are generally limited to annuities and mutual funds.
- In the three years before retirement, 457(b) plans allow you to contribute up to double the annual limit or 100% of your salary, whichever is less.
- 457(b) plans feature a "double limit catch-up" provision. This is designed to allow participants who are nearing retirement to compensate for years in which they did not contribute to the plan but were eligible to do so.
It is important to note that governmental 457 plans may be rolled into other types of retirement plans with few restrictions beyond the normal ones for any other type of employer-provided plan, which includes separation of service or disability. This includes other gastro-401(k) and 403(b) plans and also IRAs. IRAs have much greater flexibility in withdrawal and conversion privileges. In contrast, nongovernmental 457 plans can only be rolled into another nongovernmental 457 plan.
