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457 Plan

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Similar to a 401K and a 403B plan and based on section 457 of the Tax Code, a 457 plan is a non-qualified tax-deferred compensation program for governmental employees and employees of non-church controlled tax-exempt organizations. Only eligible employers can establish a 457 plan. There are two types of 457 plans. The 457(b) plan, detailed under under IRC 457(b), is an eligible 457 plan. Under this type of 457 plan, employees can defer compensation on a pre-tax basis though payroll deduction. On the other hand, the 457(f) plan, detailed under under IRC 457(f), is an ineligible 457 plan and is subject to different tax treatment. Through an eligible 457 plan (i.e. 457(b) plan), holders defer federal and sometimes state taxes until the assets are withdrawn. An eligible 457 plan includes limits on the amounts deferred. In contrast an ineligible 457 plan (i.e. 457 (f) plan) has no contribution limits. Annual limits for 457(b) plans are set forth in IRC 402(g). For 2009 and 2010, the limit was set at $16,500. With an eligible 457 plan, distributions are made only when the employee reaches the calendar year of age 70 1/2, is severed from employment, or has a great financial need due to an unforeseeable emergency. Participants in an eligible 457 plan may rollover distributions into an Individual Retirement Account. In addition, eligible 457 plan holders may rollover a 457 plan to another 457 plan without incurring income tax on the amount rolled over.



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