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457b Deferred Compensation Plans


Plans of deferred compensation described in IRC section 457 are available for certain state and local governments and non-governmental entities tax exempt under IRC 501. They can be either eligible plans under IRC 457(b) or ineligible plans under IRC 457(f). Plans eligible under 457b allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Ineligible plans may trigger different tax treatment under IRC 457(f).

Who can establish a 457(b) plan?

The organization must be a state or local government or a tax-exempt organization under IRC 501(c).

How do 457(b) plans work?

Employers or employees through salary reductions contribute up to the IRC 402(g) limit on behalf of participants under the plan.

What are the advantages of participating in a 457(b) plan?

There are significant tax advantages for participants in a 457(b) plan:

  • Contributions to a 457(b) plan are tax-deferred.
  • Earnings on the retirement money are tax-deferred.

Can a 457(b) plan include designated Roth accounts?

A governmental 457(b) plan may be amended to allow designated Roth contributions and in-plan rollovers to designated Roth accounts starting in 2011.

Source: IRS


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