457 Retirement Plan
The 457 retirement plan is a type of tax deferred and advantaged retirement compensation plan. It mostly covers state and federal government employees. Employees of the state and government agencies are also included under the plan. The benefits provides by the 457 plan make it a very popular retirement savings options for employees, retirees and aged Americans.
Features and benefits
In case of the 457 retirement plan, the employer provides the plan. On the other hand, the employee is allowed to defer the compensation on a pre tax basis. The features of the plan are somewhat same as the 401(k) or the 403(b) plans. However, compared to the other plans, no employer matching contributions are allowed in case of the 457 plans. Those who are covered under the plan can as well as defer a part of their annual income. The contributions that one makes into the account are also tax deferred until the money is withdrawn. However, unlike other retirement plans, no 10 % deduction or penalty is imposed if one withdraws before reaching the age of 59 ½..
Independent or self employed contractors or employers can also take part in the 457 plan. This is not allowed in case of the 401(k) and 403(b) plans. You can opt for taking the distributions in the form of a lump sum amount, annuities or in the form of annual installments. The distributions that you are provided are entitled to basic income taxes. You are also allowed to transfer the amount into a traditional IRA.
Taking part in the 457 retirement plan also helps you reduce the rate of your current taxes while making the investments. In addition, the savings that you make are also tax deferred. Another advantage is that you can change your account into a new retirement plan if you change your job or opt for a new job. Moreover, even if you leave your job early, you are not liable to any type of penalty. However, if you withdraw the money early, you need to pay taxes which are applicable on the amount that you withdraw.
The Plan can also be an ideal investment plan in states where no Social Security contributions are applicable. However, for being entitled to the various benefits of the 457 plan, you need to comply with some of the terms and conditions set by Internal Revenue Code.
Catch up provisions
There are usually two types of catch-up provisions in the 457 plans. The first provision is somewhat same as the defined contribution plans. The catch up amount is similar to an extra fund of $5,500 which can be contributed. On the other hand, the second provision, which is mostly applicable under the 457 government plans, can be chosen by an employee if he or she is within 3 years of the normal retirement age.
The 457 plan provides very good long term benefits. They can be easily handled and more or less safe. All these benefits have made it one of the most favored retirement contribution plans.