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Frequently Asked Questions: 457

Quick Review of 457 Plans

  1. It is an important source of pension benefits.
    For some employees, this is an important source of pension benefits at retirement.

  2. 457 Plans are deferred compensation plans.
    These are deferred compensation plans available to employees of state and local government entities, and many of the tax-exempt organizations.

  3. Allow employees to defer up to 100% of compensation.
    These plans allow employees to defer up to 100 percent of their compensation to their retirement fund, but the maximum that can be deferred is $12,000 for 2003.

  4. Contributions are treated as non-includable income.
    Contributions to the 457 plan are treated as non-includable income, lowering the worker's gross pay and thus reduces the annual amount of taxes owed to the IRS.

  5. A flexible retirement program.
    457 Plan is one of the most flexible retirement programs available.

  6. Assets are held in a trust.
    Assets are held in trust for the benefit of the participants.

  7. "Catch-up" provision allows larger contributions for older workers.
    457 Plans have a "catch-up" provision that allows older workers to make larger contributions.

  8. Can roll over into IRAs.
    As of January 1, 2002, you can roll your 457 plans into IRAs, as a result of the new tax laws.

  9. Distributions to begin before age 70 1/2.
    Distributions from 457 plans must begin no later than age 70 1/2.