Understand 457 Retirement Plans

In the United States of America the so-called 457 retirement plans are available to governmental and certain non-governmental employers.

The 457 Plans were established by the US federal government to allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. The name refers to section 457 in the US Internal Revenue Code.

Plans based on this section of the US Internal Revenue Code became generally known as 457 Retirement Plans.

In short a 457 Plan is a tax advantaged deferred-compensation retirement plan that permits you as an employee to have a portion of your salary deducted from your paycheck and contributed to an account. Your employer may also make contributions to this account.

The 457 plans are very similar to the well known 401k retirement plans in the United States of America. The major difference is that there is no 10% penalty for withdrawal before the age of 59 years and six months. Withdrawals are of course subject to ordinary income taxes.

Tax on your, as well as your employer's, contributions plus the income earned on the account is deferred until your retirement or until you draw against this account.

The Internal Revenue Service sets a maximum amount you can contribute annually to your 457 plan. The smart thing to do is to contribute as much as you can within the limits allowed.

457 Plans make provision for 'rollover' when you change your employer. That means you can move your assets from your old 457 plan to your new 457 plan, to an Individual Retirement Account, or to a 401k retirement plan.

You decide how your money is invested inside your retirement plan. The smart thing is to diversify your investment spread and to remain cautious and conservative rather than aggressive.

Your retirement plan is only one component of your comprehensive retirement plan. Do consider a retirement income planner in your research and choose a retirement calculator by visiting these pages on our Web site.

However, you cannot rely on these tools entirely for your retirement planning decisions. You'll need a qualified advisor for that.

457 Plans are for state or local government employees in the United States of America. For employees of private companies please refer to 401k retirement plans. For employees of educational institutions, churches, public hospitals and certain nonprofit organizations please refer to 403b retirement plans.

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