The 457(b) plans are deferred compensation retirement saving schemes which state governments and local authorities in America sponsor for their employees. These retirement schemes are primarily for civil servants, law enforcement personnel, firefighters, municipal workers, and public safety employees. However, executives managing hospitals, trade unions, charities, and even independent contractors in the local governmental agencies’ payroll can participate in the schemes. Under the 457(b) plans, they can choose to make tax-exempt monetary contributions from their regular monthly remunerations to lucrative financial assets. This sum of money accumulates over time and is not taxable until they withdraw it on their retirement.
Arbor Financial Melbourne – How do the 457(b) plans work?
Arbor Financial Melbourne is a respected name in investment securities in the United States of America. It is an SEC-registered investment advisory firm in the nation with a team of experienced and qualified experts in the field. According to them, many state and local government employees might want to participate in the 457(b) plans to save for their retirement.
They need to understand these retirement savings schemes are almost similar to the 401(k) and 403(b) plans. These employees permit their employers to deduct specific pre-tax contributions from their regular monthly remunerations. This helps to reduce the overall tax payable on their monthly paycheck. Moreover, they get the option to choose to invest the monetary contributions in lucrative tax-deferred mutual funds or annuities. However, the 457(b) plan does not permit them to invest in individual company stocks and exchange-traded funds (ETFs).
Employers’ matching contribution
State and local government agencies can opt to deposit a sum of money equivalent to their employees’ contribution to the 457(b) plans. This helps increase the funds that accumulate in their employees’ retirement savings schemes. The Internal Revenue Code (IRC) laws, rules, and regulations about the 457(b) plans permit them to make this matching contribution. However, there are specific limits that employers need to abide by when depositing this sum of money into their employees’ 457(b)plans. Moreover, the employers’ contributions to their employees’ 457(b) plan are exempt under the relevant regulations of the Federal Insurance Contribution Act (FICA).
Advantages of the 457(b) plans
The advantages for participating in the 457(b) plans for all categories of state or local government employees are as follows:
- Enables them to build a viable fund that generates a post-retirement income stream,
- Ensures the are not liable to penalties for making withdraws from schemes in specific cases,
- Allows them to take full advantage of employers’ contributions to their retirement schemes, and
- Permits them to make catchup contributions within three years before their retirement.
According to the professionals of Arbor Financial Melbourne, participating in the 457(b) plans is an ideal way for government employees to build their wealth and income source for their retirement. However, it is prudent to find out about certain aspects of this retirement savings scheme. These include investment options, contribution limitations, withdrawal timings, and consolidating with IRA accounts. They can even opt to consult a reliable financial specialist with expertise in tax issues on the matter.