Tags: Retirement | 457 plans | retirement

What Are 457 Plans?

By    |   Saturday, 22 August 2015 06:03 PM

Some public and state employees are offered a retirement plan called the 457 plan. These plans work similarly to other retirement plans, but they have some differences when it comes to limits on contributions and early withdrawals.

One advantage of a 457 plan is for people who work at companies offering both 401(k) plans and 457 plans, CNN Money said. The reason is that an employee can participate in and max out contributions on both accounts – doubling their retirement dollars. Instead of just $18,000 (in 2015) as a max on one plan, a contributor under age 50 could invest as much as $36,000 in a single year toward retirement.

Another advantage of a 457 retirement plan is the absence of early withdrawal penalties, CNN Money reported. The 457 plan is different because it is considered a deferred compensation plan. The money is considered to be a salary reduction the employer contributes on behalf of the employee.

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According to the IRS, most people
will face a 10 percent additional tax on money taken from retirement plans before the age of 59 ½. This is to discourage people from dipping into these funds before retirement. If standard IRA or other retirement funds are rolled into a 457 plan, those funds would still be subject to the 10 percent additional tax for early withdrawal.

The tax advantages of a 457 plan include tax-deferred contributions and earnings.

Tax exempt organizations are also eligible to offer 457 plans to employees.

Qualified 501(c )3 organizations can offer 457 plans to highly-compensated workers, but there is not specific designation for what makes a worker highly compensated, Forbes said. The plans come in four different categories: eligible, ineligible, governmental and nongovernmental.

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Some public and state employees are offered a retirement plan called the 457 plan. These plans work similarly to other retirement plans, but they have some differences when it comes to limits on contributions and early withdrawals.
457 plans, retirement
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2015-03-22
Saturday, 22 August 2015 06:03 PM
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