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A 457(b)-retirement plan is a type of retirement typically offered government and nonprofit organizations. It allows employees to save for retirement on a tax-advantaged basis. Here's a simple breakdown:
A 457(b) retirement plan is a type of retirement savings plan available to certain employees of governmental and tax-exempt organizations, such as state and local governments, public schools. It allows employees to contribute a portion of their income to the plan on a pre-tax basis, meaning the money is taken out of their paycheck before taxes are deducted.
The contributions made to a 457(b) plan grow tax-deferred, which means you don't have to pay taxes on the money or its investment earnings until you withdraw them in retirement. This can help your retirement savings grow faster over time.
One key feature of a 457(b) plan is that it allows employees to make additional catch-up contributions if they are within three years of their plan's normal retirement age. This can be particularly beneficial for individuals who have not been able to save as much for retirement earlier in their careers.
When you retire and start withdrawing money from your 457(b) plan, the withdrawals are subject to income tax. The unique feature is that distributions can occur upon separation of service - the participant does not need to wait until 59 ½ start taking withdrawals, the participant will avoid the early withdrawal penalty that typically applies to other retirement accounts.
It's important to note that a 457(b) plan may have different rules and features depending on the employer, so it's recommended to review the specific details and guidelines of your employer's plan.
Overall, a 457(b) retirement plan provides a tax-advantaged way for eligible employees of governmental and tax-exempt organizations to save for retirement, helping them accumulate funds for their future financial needs.