| About the 457(b) and Why It Is Important | ||
| The 457(b) is a retirement plan available to employees of state and local governmental agencies, including public school employees. It is sometimes referred to as deferred compensation. The 457(b) is named after the section of the IRS code governing it. The 457(b) can be an excellent way to save money for retirement. It can serve as a supplement to a traditional pension plan or other retirement plan(s), or as a stand-alone plan. | ||
| Eligibility | ||
| State and local governmental employees are eligible to participate in public 457(b) plans. This means that all public school employees are eligible to participate. However, not all eligible employers make this plan available to all employees. Not all eligible employers make this plan available at all. Check with your employer for details. | ||
| How a 457(b) is Different From a Pension | ||
| Pensions, like CalSTRS in California, are formula-based retirement plans in which payout at retirement is based upon such factors as years of service and salary. Eligible employees are automatically enrolled in one of these plans upon employment. All investment decisions for these pensions are made by plan officials. In contrast, the 457(b) is a voluntary, self-directed plan in which payout at retirement is based upon how much money an individual accumulates in the 457(b). | ||
| How a 457(b) is Different From a 401(k) | ||
| The 457(b) is a retirement plan available to employees of state and local governmental agencies, including public school employees. The 401(k) is a retirement plan for private sector workers. | ||
| How a 457(b) Works | ||
| Employees enroll and participate through their employer. Contributions to a 457(b) are made on a pre-tax basis through a Salary Deferral Agreement. This is an arrangement where the participating employee agrees to take a reduction in salary. The amount by which the salary is reduced is directed to investments offered through the employer and selected by the employee. These contributions are called elective deferrals and are excluded from the employee’s taxable income. Contributions grow tax-deferred until the time of retirement, when withdrawals are taxed as ordinary income. See Accessing 457(b) Savings and Making Other Changes to Your 457(b) for information on withdrawing 457(b) money. | ||
| Roth 457(b) | ||
| New legislation creating a Roth 457(b) is set to take affect in 2011. As more information about this development becomes available it will be posted here. | ||
| How a Roth 457(b) Is Different From a Roth IRA | ||
| As information about the Roth 457(b) becomes available details on the difference between a Roth 457(b) and a Roth IRA will be presented here. | ||
| What You Should Know Before Opening a 457(b) | ||
| All investments carry with them a degree of risk. It is important to understand your tolerance for risk before investing. Those with low risk tolerance may be better suited to a conservative investing strategy that relies, for the most part, on fixed investments. Conversely, those with high risk tolerance may be better suited for more aggressive investments. It cannot be emphasized enough that risk tolerance is highly individualized. An investment strategy that is acceptable to one person may not be suited to another. It is also important to know that fees, operating rules, and investment objectives may vary greatly among product vendors and across investments offered by a particular vendor. Some investments impose surrender charges or restrictions on withdrawals. One thing is certain: the more you know about yourself as an investor, and the more you know about investing and the workings of the 457(b) plan, the better prepared you will be as an investor. | ||
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457(b) Basics |
Accessing 457(b) Savings » | |
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