457 Plan

457 Plan: A 457 plan is a tax-advantaged retirement savings plan offered to employees of many state and local governments and some nonprofit organizations. Like the better-known 401(k) plan in the private sector, the 457 plan allows employees to deposit a portion of their pre-tax earnings in an account, reducing their income taxes for the year while postponing the taxes due until the money is withdrawn after they retire.

There are two main types of 457 plans:

• 457(b): This is the most common 457 plan. It is offered to state and local government employees and nonprofits. It is a retirement savings plan that offers tax advantages to participants.
• 457(f): This plan is offered only to highly compensated executives in tax-exempt organizations. It is a supplement to the 457(b) and it is, essentially, a deferred salary plan.