A 457(b) plan is a non-qualified, tax-deferred compensation plan offered by many tax-exempt institutions to their employees, especially by governments. The 457(b) plan, like a 401(k) or 403(b) plan, allows you to save for retirement.
Contributions are made from pre-tax wages, and the Internal Revenue Code sets the maximum contribution limits. The limit for 2007 is the lesser of $15,500 or 100% of an employee's salary. Catch-up provisions apply to those 50 or older; these people can contribute an extra $5,000 in 2007.
What benefits are afforded to me with the 457(b) plan?
Make additional salary deferrals above the individual limits offered through a 403(b) or 401(k) plan.
Lower your current taxable income.
Defer receiving and paying income taxes on bonuses.
Take advantage of compound tax-deferred earnings.
Receive distributions and spread taxes over many years to potentially lower your
tax rate.
Offset taxes from nondiscrimination testing refunds.
Partner with a company that has historically competitive investment products, common values and a steadfast commitment to superior service.
Unlike other retirement plans, the assets in a 457(b) plan do not belong to the individual but are essentially represent a promise from the employer to you, the account holder. This is almost certainly fine for employees of large state universities, but could become an issue at a small non-government employer.
Funds from a 457(b) plan can be rolled into another 457(b) plan if you change employers. A public plan (i.e., government 457(b) account) can be rolled into a qualified retirement-savings plan such as an IRA or a 401(k). However, employees with private 457(b) plans are not allowed to roll funds from their 457(b) plans to a qualified plan such as an IRA.
