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Government Plans











Some employees of state and local governments, along with some employees of tax-exempt organizations, may have access to a particular type of retirement plan called a 457 plan. Originally, 457 plans (named after the portion of the tax code that created them) were very unique in their rules. However, in 2001, the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) made significant changes to 457 plans, and now they’re much closer to 401(k) and 403(b) plans. However, there are still some differences.

The fundamentals of 457s
Just like 401(k)s, 457 plans allow participating workers to set aside part of their paychecks into a tax-deferred savings plan that offers a range of investment choices. Any contributions grow tax-deferred until retirement, and when they’re withdrawn, they’re subject to income taxes.

457 plans have the same contribution limits as 401(k) and 43(b) plans ($18,000 for 2015). Some plan participants, though, may have the choice of contributing to either a 457 plan, or a 401(k) or 403(b). In fact, they can even contribute to both at once. If that’s the case, those participants can contribute the maximum amount to BOTH plans (totaling $36,000 in 2015).

In addition, 457 plans have the standard catch-up provision of 401(k)s and 403(b)s, where employees aged 50 and older can contribute additional funds to the plan ($6,000 for 2015).

What’s different?
One difference is that 457 plans can provide a special catch-up contribution feature. Employers aren’t required to allow it, and the formula is complex. In the three years prior to his or her retirement, a 457 participant can contribute the lesser of twice the annual limit OR the annual limit, plus the amount of the basic limit not used in previous years.

Another key difference is that 457 participants can take distributions as soon as they leave their employer, regardless of their age. There’s no early withdrawal penalty for 457 plans, though withdrawals are taxed as income. This benefits certain professions like police and firefighters, who may leave their employment before age 59½.

There are two types of 457 plans, which include 457(b) (which are “eligible”) and 457(f) (which are “ineligible”). They’re divided into two categories: government and nongovernment. Government 457(b) plans are the most common type. However, certain tax-exempt employers can establish ineligible 457(f) plans, but they can only be offered to highly compensated employees. They’re often called “top hat” plans, and they help those highly compensated employees save more money for retirement. Top hat plans are exempt from many ERISA requirements.

Get your questions answered
Though 457 retirement plans have gotten simpler in recent years, they are still very complex and unique. Businesses who can offer 457 plans should know how they benefit their employees, and employees who have access to these plans need to understand how they fit into their retirement goals. That’s where FiduciaryFirst can help. For more information about 457 plans and other retirement options, visit or call 866-625-4611.

Tracking number: 1-349911

This material was created for educational and informational purposes only and is not intended as ERISA, tax, legal or investment advice. To determine which investment(s) and/or investment strategies may be appropriate for you, consult your financial advisor prior to investing. The employers listed reflect a comprehensive client list of the government plans we advise.  It is not known whether the listed clients approve or disapprove of the advisor or the advisory and/or brokerage services provided.

Contact Details

1060 Maitland Center Commons

Suite 360

Maitland, FL 32751

Phone: 866-625-4611

Fax: 407-740-6113



Retirement Plan Consulting Program and other advisory services offered through LPL Financial, a registered investment advisor.

This information was developed as a general guide to educate plan sponsors, but is not intended as authoritative guidance or tax or legal advice.  Each plan has unique requirements, and you should consult your attorney or tax advisor for guidance on your specific situation.  In no way does advisor assure that, by using the information provided, plan sponsor will be in compliance with ERISA regulations.


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