What is a 457(b) in the United States?

A 457(b) retirement plan is a deferred compensation plan that is available to certain public and nonprofit employees in the United States. The plan allows employees to set aside money from their paychecks on a pretax basis and to invest those funds in a wide variety of investment options, including stocks, bonds, and mutual funds.

The 457(b) plan gets its name from the section of the tax code that governs it. It is sometimes referred to as a “nonqualified” or “non-ERISA” retirement plan because it is not subject to the Employee Retirement Income Security Act of 1974 (ERISA).

ERISA is a federal law that sets standards for employer-sponsored retirement plans, such as 401(k)s. Plans that are not subject to ERISA are not subject to the same Rules and regulations, which can make them more flexible for employers and employees.

One of the key features of the 457(b) plan is that it allows employees to defer taxes on their contributions until they retire. This is different from a 401(k) plan, which taxes contributions when they are made. For employees in high tax brackets, this can be a significant advantage.

Another key feature of the 457(b) plan is that it has no annual contribution limit. This is different from a 401(k) plan, which has an annual contribution limit of $18,000 (or $24,000 for employees age 50 and over).

The result is that employees can potentially set aside a substantial amount of money for retirement on a tax-deferred basis. Of course, this also means that employees will owe taxes on their contributions when they eventually withdraw the money in retirement.

457(b) plans are sponsored by employers, but they are not required to offer them. As a result, not all employers offer 457(b) plans. If your employer does offer a 457(b) plan, you will need to decide if you want to participate.

If you do decide to participate, you will need to make sure that you understand how the plan works and how it can benefit you. You will also need to carefully consider your investment options and make sure that you are comfortable with the risks involved.

Overall, the 457(b) plan can be a great way to save for retirement. If you are lucky enough to work for an employer that offers one, it can be well worth taking advantage of it.