Deferred compensation plans, also known as 457 retirement plans are designed for state and municipal workers and employees of some tax-exempt organizations.
If you participate in a 457 plan, you can contribute a portion of your salary to a retirement account. That money and any earnings you accumulate are not taxed until you withdraw them.
The difference between a 401(k) and a 457 retirement plan
Although they’re alike in many ways, there are some differences between 401(k) and 457 plans, particularly when it comes to early withdrawal penalties and minimum required distributions.
With a 457 retirement savings plan:
- There isn't a minimum retirement age
- There isn't a 10% federal penalty for early withdrawal of funds, although withdrawals are subject to ordinary income taxes
- There is a withdrawal option for unforeseen emergencies that meet certain legal criteria, if all other financial resources are exhausted
- Distributions are available in a lump sum, annual installments or as an annuity
- There is no tax withholding if you leave for a new job and roll over your money into an IRA or your new employer's 401(k), 403(b) or 457 plan – or if you take regular installments for 10 years or more. (All other distributions are subject to 20% withholding for federal taxes.)
Keep in mind that federal income tax laws are complex and subject to change. Neither Nationwide nor our representatives give legal or tax advice. Please consult your attorney or tax advisor for answers to specific questions.