457 Retirement Plan

457 deferred compensation plans are available for state, county, or city employees.

457 deferred compensation plans are available for state, county, or city employees. An employee may elect to defer annually the lesser of $8,000 or 25 percent of compensation. There is a "catch-up" provision for participants. Mandatory withdrawals must begin by age 70 1/2, and withdrawals are taxed as ordinary income. Plan assets compound tax deferred, but employees can get at their money without a penalty before age 59 1/2 if they terminate service or retire. At that time, they can choose to leave the money until a later date( but must select that date at termination of service), or they can begin withdrawals.

This privilege is costly because, as a nonqualified deferred compensation plan, the IRS does not allow IRA rollovers. If a participant takes a job with another employer that has a 457 plan, she may be able to transfer her account to her new employer's plan.