Employer contributions to 457(b) plans are tax deferred up to annual limits. Employee elective contributions are deferred from income tax. They are subject to FICA.

How does a 457 deferred compensation plan work?

A 457 deferred compensation plan allows you to save and invest money for retirement with tax benefits. Contributions are made to an account in your name for the exclusive benefit of you and your beneficiaries. The value of the account is based on the contributions made and the investment performance over time.

Should I participate in my company’s deferred compensation plan?

When you defer income, federal income tax is also delayed, but you do pay Social Security and Medicare taxes. A deferred comp plan is most beneficial when you’re able to reduce both your present and future tax rates by deferring your income. Unfortunately, it’s challenging to project future tax rates.

Can you cash out a 457 plan?

Unlike other retirement plans, under the IRC, 457 participants can withdraw funds before the age of 59½ as long as you either leave your employer or have a qualifying hardship. You can take money out of your 457 plan without penalty at any age, although you will have to pay income taxes on any money you withdraw.

When can I withdraw money from my 457 plan?

59½
Unlike other retirement plans, under the IRC, 457 participants can withdraw funds before the age of 59½ as long as you either leave your employer or have a qualifying hardship. You can take money out of your 457 plan without penalty at any age, although you will have to pay income taxes on any money you withdraw.

Is there such a thing as a 457 deferred compensation plan?

A deferred compensation plan is another name for a 457 (b) retirement plan, or “457 plan” for short. Deferred compensation plans are designed for state and municipal workers, as well as employees of some tax-exempt organizations.

Can a government employee contribute to a deferred compensation plan?

Deferred compensation plans are designed for state and municipal workers, as well as employees of some tax-exempt organizations. The content on this page focuses only on governmental 457(b) retirement plans. If you participate in a deferred compensation plan, you can contribute a portion of your salary to a retirement account.

What are the different types of deferred compensation plans?

There are two types of 457 deferred compensation plans — eligible plans [457(b) plans] and ineligible plans [457(f) plans]. A plan that meets all the requirements of IRC 457(b) is an eligible plan.

Is there a limit to how much salary can be deferred?

The amount of salary deferrals you can contribute to retirement plans is your individual limit each calendar year no matter how many plans you’re in. This limit must be aggregated for these plan types: If you’re in a 457 (b) plan, you have a separate limit that includes both employee and employer contributions.