Government Plans

A government plan is a way for certain types of employees to save for retirement. Government plans are commonly referred to as 457 plans after the Internal Revenue Code section that authorizes them. Using the term 457 plans is more accurate because these plans can cover certain non-governmental employees as well.<.p>

As originally enacted, 457 plans allow employees of state and local governmental units to defer compensation for retirement. Today, 457 plans are also available to employees of certain nongovernmental organizations exempt from tax under Code Sec. 501. The tax-exempt organizations that can set up a 457 plan include trade associations, private hospitals, private clubs, cooperatives, private schools, and labor unions. However, 457 plans do not apply to church plans maintained by a church or a qualified church-controlled organization.

Technically, 457 plans are nonqualified deferred compensation arrangements. This just means that the Internal Revenue Code does not list this type of plan as a qualified plan. In practice, though, 457 plans increasingly share many of the same characteristics as qualified retirement plans. For example, contribution limits of 457 plans are the same as those for 401(k)s and 403(b) annuities. That is why 457 plans are discussed here in the qualified plan section, rather than in the nonqualified plan section.

To learn more about 457 plans, take a look at the following discussions:

• How a 457 Plan Works: Although participating in a 457 plan is easy to do, you should still be aware of how such plans operate and why a 457 plan may not work for you.
• 457 Plan Rollovers: Find out how your 457 plan contributions are affected when you switch jobs.
• 457 Plan Distributions: Although sometimes it may seem like it will never happen, there is hope that you will eventually get to use the money in your 457 plan account. Before taking money out, however, learn the distribution rules that apply to 457 plans.