What type of plan is a 457 Plan?

A 457 Plan is indeed a deferred compensation plan specifically designed for government employees and certain non-profit organizations. This plan allows employees to set aside a portion of their salary, which is not taxed until it is withdrawn, thereby offering tax-deferred growth.

Participants can contribute pre-tax earnings, meaning they are not taxed on that income until retirement, which can significantly lower their taxable income in the years they contribute. Withdrawals from a 457 Plan are generally taken in retirement, at which point the funds are taxed as ordinary income.

The unique aspect of a 457 Plan is that it can be used alongside other retirement plans, such as 401(k)s and IRAs, making it particularly beneficial for government employees looking to maximize their retirement savings. Additionally, unlike other retirement plans, there are often fewer restrictions on withdrawal, allowing for more flexibility.

This context makes it clear why the identification of a 457 Plan as a deferred compensation plan for government employees is accurate and highlights its importance within the spectrum of retirement planning options available to these workers.