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Section 457 Plan

Key Features

  • Offered to government employees
  • Tax deferred

A Section 457 plan is a form of salary reduction plan, similar to a 401(k) plan, which is permitted to be offered to employees of governmental entities under Section 457 of the Internal Revenue Code. Employees are permitted to defer an elective amount of compensation which is deducted from current taxable income. Contributions to the plan are retained by the employer, the governmental entity, for the purpose of providing retirement benefits for the employee.

Section 457 plans are generally appropriate for entities who are unable or unwilling to provide substantial retirement benefits but who desire to allow employees the ability to make contributions in amounts larger than those available to individuals through Individual Retirement Accounts. They are good investments for those employees who are interested in investing for their retirement because it is a way of purchasing investments with pretax contributions and of accumulating their funds tax-free. At retirement, a participant's benefit is equal to the then value of the accumulated Investments held on behalf of the participant.

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