A 457 plan is a deferred compensation plan which is usually offered to employees of municipalities or tax-exempt organizations. This would include people who work for the state, county or cities. This 457 retirement plan is a non ERISA based plan. The initial contributions are a salary reduction which lowers the participant’s current-year taxable income. The monies within the 457 retirement plan grown on a tax-deferred basis until retirement at which time they are taxable at ordinary income rates.
Although most of these types of employees may be accruing a pension from the municipality they work for, these types of accounts can be very helpful during the participants’ retirement years. They can be utilized for any lump sum expenses that may arise during retirement versus the fixed income stream that their pension may generate. When the employee retires from the municipality or separates from service, the monies are typically eligible to be rolled into an IRA Rollover account. This will keep the money growing tax-deferred in the account until the participant needs access to the monies. If monies are rolled over into an IRA account, mandatory distributions must start at age 70 1/2.
For more information about your personal 457 plan or how 457 plans could have an impact on your financial strategy, contact a Trilogy advisor.