How does the 457(b) Deferred Compensation Plan work?
A 457(b) deferred compensation plan is a type of defined contribution plan available under Section 457(b) of the Internal Revenue Code. State and local governmental entities, including public universities, may offer a 457(b) plan. Employee contributions are made on a pretax basis through payroll reduction. As with the 403(b) Plan, you have choice and control over your investments and you can take your account with you should you sever employment with your university. However, there is no IRS 10% premature distribution penalty tax on withdrawals of 457(b) benefits (if you roll over non-457 money into the 457(b) Plan, that money is subject to the 10% premature distribution penalty tax if withdrawn prior to age 59). You can participate in a 457(b) plan without reducing the amount you may contribute to a 403(b) program.
