Understanding the 457(b) Retirement Plan

Welcome to our guide on 457(b) plans for employers. In this resource, we'll explore everything you need to know about 457(b) plans, including what they are, how they benefit both employers and employees, and how you can implement them in your organization.

• What is a 457(b) Plan?
• Key Features and Benefits of a 457(b) Plan
• Comparing 457(b) Plans with Other Retirement Plans
• Ready to Transform Your Benefits Package?
• Optimize Your Benefits: Integrate 457(b)
• Experience the ease and efficiency

What is a 457(b) Plan?

A 457(b) plan is a retirement savings plan specifically designed for employees of state and local governments and certain non-profit organizations. This plan offers a valuable opportunity for your employees to build a secure financial future.

Key Features and Benefits of a 457(b) Plan

457(b) Contribution Limits and Eligibility

A 457(b) plan is a retirement savings plan available to employees of state and local governments and non-profit organizations under Section 501(c)(3) of the Internal Revenue Code.

In 2024, Employees contribution limits will be up to $23,000, with an additional catch-up contribution of $7,500 available for those aged 50 and above. Previous limits were $22,500 in 2023, $20,500 in 2022, and $19,500 in both 2021 and 2020. These plans allow for tax-deferred contributions, and eligible employees can benefit from both the standard and special catch-up provisions, enabling higher contributions as they approach retirement.

Tax Advantages

Employee contributions to a 457(b) plan are made pre-tax, reducing their taxable income in the year they are made. The investments grow tax-deferred until withdrawal, at which point they are subject to ordinary income tax. Importantly, there is no 10% early withdrawal penalty for 457(b) plans, which provides flexibility for early retirees.

Employee Financial Wellness

Providing a 457(b) plan helps employees secure their financial future through tax-advantaged retirement savings. This can lead to increased employee satisfaction and loyalty.

Flexible Plan Design

Employers can tailor the 457(b) plan to meet the needs of their workforce. This includes options for special catch-up contributions for employees nearing retirement age, which can significantly boost their retirement savings.

Investment Options

457(b) plans often offer a variety of investment choices, including mutual funds, annuities, and other financial instruments. This variety allows employees to create a diversified portfolio that matches their risk tolerance and retirement goals.

Comparing 457(b) Plans with Other Retirement Plans

457(b) vs 401(k)

A 457(b) plan and a 401(k) plan both offer tax-advantaged retirement savings, but they have key differences:

Eligibility: 457(b) plans are typically available to state and local government employees and certain non-profit employees, while 401(k) plans are available to private-sector employees.

Contribution Limits: Both plans have similar contribution limits, but the rules for catch-up contributions can differ.

Early Withdrawal Penalties: 457(b) plans do not have the 10% early withdrawal penalty that applies to 401(k) plans.

Employer Matching: 401(k) plans commonly offer employer matching contributions, while this is less common in 457(b) plans.

457(b) vs 403(b)

Both 457(b) and 403(b) plans are available to employees of non-profit organizations, but they have distinct characteristics:

Eligibility: 457(b) plans are also available to government employees, while 403(b) plans are specific to non-profit and educational institutions.

Contribution Limits: Both plans have similar contribution limits, but 403(b) plans may allow higher catch-up contributions for employees with long service.

Investment Options: 403(b) plans often offer annuities and mutual funds, similar to 457(b) plans, but the specific investment choices and fees can vary.

Roth 457(b) Option

A Roth 457(b) option allows employees to make after-tax contributions, which can grow tax-free and be withdrawn tax-free in retirement, provided certain conditions are met:

Tax-Free Growth: Contributions are made with after-tax dollars, and investment earnings grow tax-free.

Tax-Free Withdrawals: Qualified distributions in retirement are tax-free, which can be beneficial for employees who expect to be in a higher tax bracket in the future.

Flexibility: Employees can choose between traditional pre-tax contributions and Roth after-tax contributions, or a combination of both, to tailor their retirement savings strategy.

Implementing a 457(b) Plan

Plan Selection: Choose a reputable plan provider that offers a diverse range of investment options and robust administrative support. This ensures that the plan runs smoothly and meets the needs of your employees.

Employee Education: Provide comprehensive resources and education to help employees understand the benefits and mechanics of the 457(b) plan. This can include workshops, informational materials, and one-on-one consultations.

Contribution Matching: Consider offering employer matching contributions to encourage employee participation. This not only boosts employees' retirement savings but also demonstrates your commitment to their financial well-being.

Regular Review: Periodically review the plan's performance and employee participation rates. This ensures that the plan continues to meet your organization's goals and provides the best possible benefits to your employees.

Conclusion

Offering a 457(b) plan can significantly enhance your benefits package, helping you attract and retain talented employees while supporting their long-term financial security. By understanding the features, benefits, and implementation strategies of a 457(b) plan, you can provide a valuable retirement savings option to your workforce.

Ready to Transform Your Benefits Package?

Integrating a 457(b) plan into your organization's benefits package can significantly enhance its appeal, making your organization more attractive to potential employees and providing current staff with a secure financial future.

Optimize Your Benefits: Integrate 457(b) with Securepaystubs!

Incorporating the 457(b) plan with our paystub generator shows commitment to employee financial well-being and streamlines payroll, ensuring clarity and transparency in compensation.

Experience the ease and efficiency of SecurePayStubs:

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24/7 Accessibility: Access paystubs anytime, anywhere for ultimate convenience, allowing employees to track their 457(b) contributions seamlessly.

Transform your paystub management today with SecurePayStubs and highlight 457(b) contributions prominently on your employees' paystubs. Visit SecurePayStubs now to get started!

This article has been updated from its original publication date of May 22, 2024.