Sponsored by state and local government employers, 457(b) Plans help employees build retirement savings and reduce taxes.

Employers such as state and local governments (including counties, cities, municipalities, villages and townships) may adopt governmental 457 Plans.  Other government employers such as transit authorities, public utilities, public schools and universities may also establish a 457(b) Plan for their employees. Certain private-sector tax-exempt employers and executives and government officials may be eligible for a 457 Plan, which differs from the 457(b) Plan discussed above.

Advantages  

Because of recent legislative changes, 457(b) Plans are more attractive than ever. They provide for pretax salary deferrals and tax-deferred growth on these deferrals until withdrawal, at which time they are taxed at ordinary income rates.

Additional information

Contributions
Employees and independent contractors may be eligible to participate in a 457(b) Plan.  Employers and employee deferrals are limited to the smaller of (1) 100 percent of compensation or (2) $16,500* for 2010.

Eligible 457(b) Plan participants may make special catch-up contributions. The catch-up contribution limit is $5,500* for 2010.

Withdrawals
To receive a distribution from a 457(b) Plan, employees must reach the age of 70 ½ during the current calendar year or have a triggering event such as death, severance from employment (including retirement), or an unforeseen emergency.

Unlike 401(k) plans, distributions from 457(b) plans are not subject to the 10 percent premature distribution tax when distribution is made before age 59 ½.