Trending October 2023 # How Does 457 Plan Work With Types And Features? # Suggested November 2023 # Top 13 Popular |

Trending October 2023 # How Does 457 Plan Work With Types And Features? # Suggested November 2023 # Top 13 Popular

You are reading the article How Does 457 Plan Work With Types And Features? updated in October 2023 on the website We hope that the information we have shared is helpful to you. If you find the content interesting and meaningful, please share it with your friends and continue to follow and support us for the latest updates. Suggested November 2023 How Does 457 Plan Work With Types And Features?

Introduction of 457 Plan

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others


Everyone wants to save for his future. But due to the hustle of daily work, it may not be possible for a few employees to take out time & invest in a plan that will financially support them at retirement.

Thus, the government usually comes out with a compulsory investment plan wherein a fixed amount is saved from the earning source, i.e., salary. Such deductions help employees to focus on their expenditures easily.

So, 457 plans revolve around saving through deduction from salary income per month.

The plan is offered by state & local governments to their employees and employees of the non-profit organization. Only such employees are eligible to participate in the 457 plan.

The contributions made are accumulated throughout employment to become massive at the end of tenure.

Such a plan has an added feature of tax. The withdrawals from the plan at the time of retirement are not taxed. Such exemption forms a retirement-gift gesture from the government.

Many issues can be addressed with the 457 plan, but we will consider the same in the later part of the article.

Features of 457 Plan

“Feature” means a distinctive attribute or aspect of something. It may be good or bad. So, features suggest specifying the attribute, whether positive or negative. Every plan has some features, and so does; we have an ample number of features plans as follows:

There may be circumstances that the whole of the salary of a person is wholly saved due to his other income. In such a scenario, such an employee can contribute up to 100% of his salary subject to the condition that such contribution should not exceed the applicable dollar limit.

In exceptional circumstances, employees can make double contributions to get maximum benefits.

One of the best features is that even non-federal employees can invest in the said plan. Moreover, employees of non-profit organizations are also given the liberty to invest in the said plan.

The plan allows employees to choose the appropriate investment fund where they want to invest into.

Also, such plans have the flexibility to transfer the plan from one employer to another. This flexibility happens to be another added feature of the 457 plans.

How does It Work?

The eligible employees set aside a specific amount out of their salary periodically to contribute to the plan.

Employees are offered two plans for 457(b) and 457(f). The maximum contribution limits are annual. Employees cannot contribute over and above the said limits.

After the contributions are made, the same is transferred to the retirement account of the government.

The said money grows with the compounding of interest rates. Moreover, such compounding of income is not taxed.

Types of 457 Plan

1. 457(b)

This is a simple & most common 457 plan used across the country.

Moreover, employees of the non-profit organization are also eligible for the plan.

The revised contribution limit is $ 19500 per employee per annum. This limit is applicable for 2023, with a slight increase of $ 500 compared to 2023. In exceptional cases, this limit is doubled, i.e., $ 39000 per employee per annum. Such an exception is called a double catch-up of the provision of the government. So, a doubling of limits is allowed for employees serving the last three years of their employment service.

2. 457(f)

This particular plan allowed the government to select non-government employees who have been highly compensated.

It is easy to administer compared to 457(b) & incurs a lower cost of administration.

Even employers can contribute to the plan.

Even in this plan, the employees can contribute up to 100% of their inflow through salary, subject to the maximum cap imposed by the government.

Further, executives face the risk of a substantial risk of forfeiture.

457 Plan Limits

As said earlier, the basic limit is $ 19500 per employee per year from 2023, compared to $ 19000 for 2023.

However, if the age of state or local government employees is 50 or more, they are allowed for catch-up provisions. In such catch-up provisions, the employees are permitted to contribute up to $ 6000 over & above the average annual limit.

If an employee serves the last three years of employment, he is allowed to contribute double the annual contribution limit.

Advantages of 457 Plan

The plan’s benefits are extended even to non-federal employees of the country.

It’s your hard-earned money. So, there is no absolute restriction on withdrawing money at a time during the year. Thus, there is no penalty for early withdrawal as such.

The plan has a particular focus on employees who are near their retirement age.

The focus of the government is more & more savings. Thus, the contributions are not taxed.

This serves the purpose of securing a better future.

Employees can contribute up to 100% of their salary to the plan.

One of the best things about 457 plans is the portability of the plan. This means you can transfer your retirement account to the new employer if you have to change the job.

457 plans also cover employees of local governments and highly compensated employees.

Since such contributions are compulsory, the real disposable income of employees is reduced currently.

The withdrawals are allowed only for emergencies which the employees to explain.

Such plans are non-qualified plans.


The more you invest, the more money flows to the future. Such accumulated money is saved for the future. Also, the government does not tax the contributions made. This makes even the taxation part flexible with time. Thus, tax is deferred through the allowed parameters of government. The said plan is called a non-qualified plan & hence, income retirement income security is not covered here. Thus, such a plan is best suited for employees who have planned for their retirement journey.

Recommended Articles

You're reading How Does 457 Plan Work With Types And Features?

Update the detailed information about How Does 457 Plan Work With Types And Features? on the website. We hope the article's content will meet your needs, and we will regularly update the information to provide you with the fastest and most accurate information. Have a great day!