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CalPERS 457 Plan The plan is a voluntary savings program that allows employees to defer any amount, subject to annual limits, from their paycheck on a pretax basis. In addition, employee contributions and their earnings, if any, can benefit from the power of tax-deferred compounding.
457(b) Assets can be withdrawn without penalty at any age upon separation from service from the plan sponsor, or age 70½ if still working.
High-paid executives often opt for deferred compensation plans. Deferred compensation plans cannot generally be accessed early. Many workers may not be able to afford to defer compensation. Deferred compensation plans can be at-risk if the company goes out of business or files for bankruptcy.
Federal income tax is also delayed when you defer income, but you do pay Social Security and Medicare taxes. A deferred comp plan is most beneficial when you can reduce both your present and future tax rates by deferring your income. Unfortunately, it's challenging to project future tax rates.
Deferred compensation plans can be a powerful tool for early retirement goals. Deferring income to retirement might help avoid high state income taxes (ex: California, New York, etc) if you're planning to move to a low-tax state.
The money in a 457(b) grows, tax-deferred over time. When the participant retires and starts to take distributions from their account, those distributions come with regular income taxes. A 457(b) is an example of a defined contribution plan.
For all intents and purposes, a 457(b) is just as good as a 401(k) plan. If you're employer is a public agency or a nonprofit, it's probably your best option for retirement savings. On the downside, your contributions will probably not be matched by your employer.
The plans carry some inherent risk for the employees in that the deferred payments are unsecured and not guaranteed. So if the organization faces bankruptcy and creditor claims, the employees may not receive their promised funds. (In contrast, qualified plans such as 401(k)s are protected from bankruptcy creditors).
The State of Nebraska Deferred Compensation Plan (DCP) is designed to provide employees a supplementary retirement income. As with other retirement plans, there are restrictions on withdrawals from a DCP.
A deferred compensation plan withholds a portion of an employee's pay until a specified date, usually retirement. The lump sum owed to an employee in this type of plan is paid out on that date. Examples of deferred compensation plans include pensions, 401(k) retirement plans, and employee stock options.