Discover the Benefits of a 457b Plan

  • 457(b) plans are tax-deferred savings plans offered by employers.
  • Contributions are made on a pre-tax basis, but taxes aren't paid until funds are withdrawn. 457(b) plans are a type of tax-deferred salary deferral plan, most commonly offered by school districts, state and local governments, and other public employers. 457(b) plans can be set up as either a traditional plan or deferred profit sharing plan.

457(b) plans are through a tax-deferred savings plan. Employers are eligible to establish 457(b) plans to offer employees a way to save for retirement on a pre-tax basis. These plans can be made available either through a traditional plan or deferred profit sharing plan, with the latter being the most common choice.

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What Is a 457b Plan?

A 457b plan is a retirement savings plan available to employees of state and local governments, and some tax-exempt organizations.
A 457b plan is similar to a traditional 401(k) or 403(b). However, the 457b plan has specific benefits that are geared specifically toward public-sector workers.

How 457b Plans Work

While 457b plan regulations are complex, they generally work by deferring income into a tax-deferred vehicle. That means that money deducted from your salary is not taxed.
457b plans also allow you to invest your money in a variety of investment options, including stocks, bonds, mutual funds, and cash equivalents. While contributions to a 457b plan are pre-tax, the money grows tax-deferred until you withdraw it.

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Types of 457b Plans

You have a variety of options when it comes to a 457b retirement plan. Your employer may offer these plans as an employee benefit, or you have the option of investing in your own 457b plan, known as a self-direct plan.
A 457b plan is a type of tax-deferred retirement plan. Your accounts grow tax-free until you withdraw the funds or begin making withdrawals after age 591⁄2.
With a 457b plan, you contribute money to your retirement account pre-tax, meaning you don't pay income taxes on your investment until you begin withdrawing it.

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457b Plan Fees

The 457b plan is a popular retirement plan that is offered by many employers. As an employee, you can save for retirement on a pre-tax basis, which means you will not pay Federal or State income taxes on money you contribute.

Increasing Participation

By offering 457b plans, businesses have an opportunity to attract and retain employees.
A 457b plan allows workers to defer taxes until withdrawals begin, which lowers their overall tax burden.
Workers who participate in a 457b plan are more satisfied with their jobs, according to studies.

Greater Employee Control
457b plans give businesses flexibility in structuring their benefits. They can choose to offer a traditional 457b plan, in which employees deposit a set amount every month. They can also choose to have employees contribute a percentage of their salary, and the employer will match a percentage of the contribution.

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Another appealing feature of a 457b plan is the portability of assets; money invested in a 457b plan can be transferred from one employer to another.

Lower Administrative Costs
Traditional employer-sponsored retirement plans require employers to pay significant administrative fees. 457b plans, however, are simplified retirement programs, and employers do not require special expertise to manage them (provided they hire a third party).

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The Bottom Line

A 457b plan offers a variety of benefits for you, your employees, and your company. Its high contribution limits may enable you to save more money for retirement than you could with a traditional 401k. A 457b plan can also benefit your employees by offering matching contributions, a Roth option, and tax benefits.