457 PLANS

The 457 plan is a type of tax-advantaged defined contribution retirement plan that is available for government and certain non-government employers in the United States.

The employer provides the plan and the employee defers compensation into it on a pre-tax basis. For the most part, the plan operates similarly to a 401(k) or 403(b) plan. The key difference is that unlike a 401(k) plan, there is no 10% penalty for withdrawal before the age of 59 1/2 (although the withdrawal is subject to ordinary income taxation). Another difference is that 457 plan participant cannot make designated Roth contributions as participants in appropriately amended 401(k) and 403(b) plans can.

In addition, 457 plans (both governmental and non-governmental) can allow independent contractors to participate in the plan where 401(k) and 403(b) plans cannot.