A Section 457 Plan is a type of deferred compensation plan designed for employees of state and local governments, as well as tax-exempt organizations. This plan allows participants to defer a portion of their salary, which can help reduce their taxable income in the current year. The amount that can be deferred is limited to the lesser of $15,500 or 100 percent of the employee's compensation.
Section 457 Plans are primarily used in the context of retirement planning and employee benefits. These plans are governed by specific federal regulations, which dictate their structure and operation. Legal professionals may encounter Section 457 Plans in various areas, including employment law and tax law. Users can utilize legal templates from US Legal Forms to create or manage documents related to these plans.
Here are a couple of examples of abatement:
Example 1: A city employee earns a salary of $50,000. They choose to defer $15,500 into their Section 457 Plan, which reduces their taxable income for that year to $34,500.
Example 2: A nonprofit organization employee defers 100 percent of their annual bonus of $10,000 into their Section 457 Plan, maximizing their tax deferral for that year. (hypothetical example)
| State | Contribution Limits | Additional Notes |
|---|---|---|
| California | $19,500 | Higher limits for those age 50 and over. |
| Texas | $19,500 | No state income tax benefits. |
| New York | $19,500 | Specific rules for public employees. |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
| Term | Description | Key Differences |
|---|---|---|
| Section 401(k) Plan | A retirement savings plan sponsored by an employer. | Section 401(k) plans are available to private sector employees, while Section 457 Plans are for government and tax-exempt organization employees. |
| Section 403(b) Plan | A retirement plan for certain employees of public schools and tax-exempt organizations. | Section 403(b) plans are specifically for educational and nonprofit organizations, whereas Section 457 Plans are broader. |
If you are eligible for a Section 457 Plan, consider enrolling to take advantage of tax deferral benefits. Review your employer's plan details to understand contribution limits and withdrawal rules. For assistance, you can explore US Legal Forms' templates to help manage your participation in the plan. If your situation is complex, consulting a financial advisor or legal professional is recommended.
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A Section 457 Plan is a deferred compensation plan for eligible employees, allowing them to save for retirement while reducing their taxable income.
