A 457 deferred compensation plan is a retirement plan which allows government, and some non-government, employees to save money for retirement. The 457 plan must be offered by the employer as a retirement option in order to create an account. The Internal Revenue Service (IRS) does not consider the 457 deferred compensation plan to be a qualified retirement plan. A qualified retirement plan is any plan the meets the basic requirements under Section 401A of the Internal Revenue Code and the 401(k) plan 457 plans do not permit employers to make matching contributions as with a 401(k) plan.

This means that the amount of the retirement package received annually at retirement age is based solely upon the contributions made by the employee into the 457 account. Unlike a 401(k) retirement plan, an employee with a 457 deferred compensation plan can make withdrawals at any time and not be penalized for the withdrawn amount. The employee must still pay federal income taxes on that money withdrawn, but he or she will not have to pay an excise tax. An excise tax is a 10 percent penalty placed on the funds taken out of a 401(k) plan.

Most 457 deferred compensation plans allow employees to have the option to create 401(k) plans and 403(b) plans to help prepare for retirement. This means that the employee can make contributions up to the mandated limit as set by the IRS. For 2009 and 2010 the limit is $16,500, meaning an employee can make annual contributions of up to $16,500 in all three accounts without being penalized. However, non-government 457 plans do not permit 457 contributions to be transferred to many retirement plans, i.e. a 401(k) plan.

457 plans function as they do because of the changes made under the Non-governmental 457 plans are available to some non-profit organizations and educational institutions. The reason these non-government organizations are able to utilize 457 plans is because they cannot offer any other non-qualified deferred compensation plans for retirement. However, some of these organizations, depending on which 457 plan they offer may be subject to additional taxes.

One such tax is noted under Section 409A of the Internal Revenue Code which was passed in 2004. Also, the contributions placed in a 457 deferred compensation plan cannot be placed in a trust under the Internal Revenue Code because the funds set aside for retirement in this plan must remain in the ownership of the account holder.

A 401(k) plan is an account created for the purposes of saving money for retirement. Many employers offer their employees a 401(k) plan as a part of a benefits package. The Tax Reform Act of 1978 was drafted as an amendment to the Internal Revenue Code by Congress allowing for this type of retirement plan. The section that amended the Internal Revenue Code to allow people to save for retirement is Section 401, paragraph (k) – hence the name.

A 401(k) plan allows a percentage of an employee’s wages to be placed in to an account which is managed by an employer. This percentage paid to the 401(k) account is known as a contribution. Some employers have 401(k) matching plans in which the employer will match each contribution made to a 401(k) plan from the employee’s wages. This is done either through a deposit of funds or through profit sharing. Many employers offer 401(k) plans because of their inexpensive cost to create and maintain.

This also allows for the employee to take a certain level of control over planning their retirement as opposed to the employer creating a The funds deposited in 401(k) plans are invested by a third party into either mutual funds, bonds, or money market accounts to name a few options. The decision on how the funds are invested is made by the employee.

Each type of investment has its own risks and potential returns for the money invested. The money saved for retirement depends on how the economy fluctuates and the amount of money placed in the 401(k) plan. If an employer should file for bankruptcy, the 401(k) plan is protected under the 401(k) plans and the income of an employee are affected by taxes imposed by the Internal Revenue Service (IRS) like the federal income tax.

Contributions that are made to 401(k) plans on a pre-tax basis are not subject to income taxes for that amount. For example, if an employee earns $60,000 annually and they place $5,000 into the 401(k) plan for retirement, the IRS will only impose the income tax on the remaining $55,000 earned for that year. However, other taxes and tax deductions can affect an employee’s income.

While an employee makes contributions to their 401(k) plan on either a biweekly or monthly basis, there are limits to how much a person can contribute in a year. This is known as the 401(k) limit and relates to pre-tax contributions made. For 2009 and 2010, the 401(k) limit is $16,500.

If an employee should make contributions that exceed the maximum limit, those funds must be withdrawn prior to April 15th – the date that tax returns must be submitted by. Employers who match funds deposited into 401(k) plans are also limited under Section 415 of the Internal Revenue Code. This restriction is known as the 415 limit and is announced annually by the IRS.

A Roth 401(k) plan is a retirement savings option that combines aspects of a Roth IRA plan Another contrast between a Roth 401(k) plan and a traditional 401(k) plan is that the former allows the account holder to make contributions with both pre-tax and post-tax dollars. This means that the account holder, through their employer, can make contributions at any time just as long as those contributions do not exceed the 401(k) limit.

Traditional 401(k) plans only accept contributions made with pre-tax dollars meaning that contributions are taken from the employee’s wages before the employee receives them. Another difference between to two 401(k) plans is that the distribution of funds from a Roth 401(k) must occur when the account holder has reached the age of 70.5. However, if the account holder transferred the Roth 401(k) into a Roth IRA after leaving employment, the funds can be withdrawn upon reaching the age of 59.5.

The availability of Roth 401(k) plans was intended to be terminated at the close of 2010 under the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA). This act made considerable amendments to the Internal Revenue Code including Sections 401 and 402A. However, under the Pension Protection Act of 2006 (PPA), the availability of Roth 401(k) plans has been extended.

A 401(k) plan is an employer administered retirement plan which is listed under the Internal Revenue Code as a qualified retirement plan. The section of the Internal Revenue Code to allow people to save for retirement in a 401(k) withdrawal Another type of 401(k) plan is a Roth IRA

Yet another plan that is similar to a 401(k) is a 457 plan. These plans are available to government employees and some non-government organizations. The Internal Revenue Services does not consider 457 plans to be qualified retirement plans. However, like a 401(k), 457 plans allow the account holder to contributions into a deferred compensation retirement plan. The funds, whenever they are withdrawn, are always subject to federal income taxes.