Category: 457

The 457 plan is a deferred compensation retirement plan available to employees of government agencies and some nonprofit organizations. It allows participants to contribute pre-tax earnings, reducing taxable income, with the option to make Roth contributions for tax-free withdrawals.

Key Features

Contribution Limits: In 2024, participants can contribute up to $22,500, with an additional $7,500 for those aged 50 or older.
Flexible Withdrawals: Unlike 401(k) or 403(b) plans, 457 plans do not impose a penalty for early withdrawals upon job separation.
Employer Contributions: Some employers offer matching contributions to enhance savings.

Use Cases
457 plans are especially useful for public sector workers, such as city employees, police officers, and firefighters, looking for a secure way to save for retirement. They can also be used to supplement other retirement accounts like a 401(k) or pension plan.

Benefits and Risks

Benefits: Tax advantages, employer contributions, and no early withdrawal penalties.
Risks: Limited investment options and reliance on the financial stability of the plan provider.

Market Dynamics
The value of investments in a 457 plan is subject to market trends and economic conditions. Participants are encouraged to diversify their portfolios to manage risk effectively.

Related Resources

IRS Guidelines for 457 Plans
Roth 457 Overview
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Conclusion
The 457 plan is a valuable tool for government and nonprofit employees seeking to secure their retirement with tax advantages and flexibility. Its unique withdrawal rules and the potential for employer contributions make it an attractive option for long-term financial planning.

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