Q:

What is a 457 retirement plan?

A:

Quick Answer

A 457 retirement plan is a retirement savings account offered to government employees and some employees of nonprofit organizations, states CNN Money. Advantages over other retirement plans include no penalties for early withdrawals and enhanced catch-up contribution options, reports Kiplinger.

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Full Answer

Those eligible for 457 plans include civil servants such as police and firemen and high-salaried executives of nonprofits such as unions, hospitals and charities, according to About.com. Funds placed into a 457 account and the interest earned are tax-deferred, meaning the IRS only taxes the money when the account holder withdraws it for retirement. Those with 457 plans can contribute up to $18,000 annually as of 2015, as reported by the IRS. Additionally, according to the catch-up contribution option, the plan's holder can put in double the usual amount in the final three years before the retirement age stipulated in the plan, states Kiplinger.

Employees can combine 457 plans with other retirement plans and pay in the maximum allowable contributions to both plans, reports About.com. Unlike IRA and other retirement accounts that impose additional taxes as penalties for early withdrawal, holders of 457 accounts do not have to wait until they are 59 1/2 to start using the funds. They can access the funds at any time, without penalty.

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Related Questions

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    Can you withdraw from a 457 (b) plan?

    A:

    Withdrawals can be made early from a 457(b) plan before being paid out in full in retirement under a few certain conditions, according to CNN Money. However, taxes are owed on any withdrawals.

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    What is a 401(k)?

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    The government offers taxpayers the 401(k) as a retirement savings plan sponsored by their employer. Using this program, workers are able to save and invest a portion of their paycheck before the employer withholds taxes. According to The Wall Street Journal, the employer matches a certain percentage of the savings invested by the employee.

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    What is a Section 457 retirement plan?

    A:

    A section 457(b) retirement plan is a deferred compensation option available to some local and state governments and non-governmental organizations that are tax-exempt through section 501(c) of the Internal Revenue Code, according to the Internal Revenue Service. Participants in an eligible 457(b) plan may defer income taxation on retirement savings.

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    Can I borrow money against my pension?

    A:

    Most qualified retirement plans, including pensions, allow employees to borrow against them and then repay the plan with interest, according to Investopedia. One benefit of taking a loan against a retirement account over other types of loans is that interest is repaid directly to the account.

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