What does a 457 plan refer to?

A 457 plan refers to a deferred compensation plan that is typically offered by state and local governments as well as certain non-profit organizations. This type of plan allows employees to defer a portion of their income, which can then grow tax-deferred until they withdraw the funds during retirement. The significance of this arrangement is that it provides participants with a way to save for retirement while potentially lowering their current taxable income. The funds invested in a 457 plan are usually not subject to federal income tax until they are withdrawn, which generally occurs after retirement when an individual may be in a lower tax bracket. This tax deferral is a key feature that makes 457 plans an attractive option for many employees looking to enhance their retirement savings.