457 Retirement Plans, What Do You Think Makes Them Different?
457 retirement plans are actually sets of provisions under Tax Code Section 457 that governs all non-qualified compensation plans of governmental and non-church controlled tax-exempt organizations. The purpose is to allow employees to set aside funds for their retirement.
These plans are also known as Section 457 plans.
Only eligible employers can establish 457 retirement plans.
Eligible employers refer to states, subdivisions of states, instrumentalities or political subdivisions of states, or any entity other than a governmental unit that is exempt from federal income taxes.
In many areas, the 457 plans are similar to the 401k plans (retirement plans created specifically for employees in the private sector). In both plans, employees would contribute portions of their paychecks into a retirement account. That money and any earnings that the employees accumulate are not taxed until they withdraw them.
But there’re 3 key differences found in a 457 plan, in that it has:
No employer match No minimum retirement age No 10% federal penalty if you withdraw the funds early (i.e.before the age of 59