What are IRC 457(b) Deferred Compensation Plans?
Per the IRS, "Plans of deferred compensation described in IRC section 457 are available for certain state and local governments and non-governmental entities tax exempt under IRC 501." The eligible retirement plans under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years.
Which organizations can establish a 457(b) plan?
The organization must be a state or local government or a tax-exempt organization under IRC 501(c).
How do 457(b) plans work?
Employers or employees through salary reductions contribute up to the IRC 402(g) limit ($15,500 in 2008, $16,500 in 2009) on behalf of participants under the plan.
What are the advantages of participating in a 457(b) plan?
As with most retirement plans, the advantages for participants in a 457(b) plan are as follows:
1.Contributions to a 457(b) plan are tax-deferred.
2.Earnings on the retirement money are tax-deferred.