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A 457 plan is a long-term retirement savings program offered
to employees of state or local governments or certain tax-exempt
organizations. A 457 plan allows you to defer compensation on a pre-tax
basis through payroll deductions and defer
federal, and in some cases, state taxes until you begin receiving annuity
payments at retirement.
A 457 plan provides tax deferral. An
annuity also provides tax deferral in the absence of a 457 plan.
Combining a 457 plan with an annuity does not create any additional tax
deferral benefits, and a 457 plan should be chosen for features and benefits
other than tax deferral.
During your working years, you contribute money to an
annuity on a pre-tax basis through payroll deduction. All earnings are tax-deferred.
When you retire, the savings and earnings from your 457 plan may be withdrawn
to help supplement a comfortable retirement.
Tax-deferred means that you postpone paying taxes on the
amount you contribute to your 457 plan and the earnings until you start taking
money out of your annuity contract (usually after you retire). The tax deferral
component of a 457 plan reduces your current taxable income while you
accumulate money for your retirement.
You are eligible to participate in a 457 plan if you work
for an organization that offers a 457 retirement program. Some examples
of eligible employers are:
- Charitable organizations
- Religious organizations
- Educational organizations
- Private hospitals
- Private foundations
- Labor unions
- Fraternal orders
- State or local governments
Since a 457 plan is not classified as a "qualified" retirement
plan, eligible withdrawals are not subject to early withdrawal penalties like
those associated with 401(k) and 403(b) retirement plans. However, any eligible
withdrawal would be subjected to income taxation.
This Web site is not intended or written to be used as
legal or tax advice. As a taxpayer, you cannot use it
for the purpose of avoiding penalties that may be imposed
under the tax laws. You should seek advice on legal or tax
questions based on your particular circumstances from an
independent attorney or tax advisor.
*Statistics compiled from the 2004 Retirement
Confidence Survey, Employee Benefit Research
Institute; and "Coming Up Short: The Challenge of 401(k) Plans," Alicia Munnell
and Annika Sunden
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