Government employees retirement plans are very similar to the private sectors because the tax contribution are deductible, the interest earned are tax deferred, and there are matching contributions provided.
The difference probably is how it is named in the tax code.
You are probably very familiar with the 401(k) plans because most companies have these.
But if you work for the government, the retirement plans are pretty much the same as the 401(k) plans but the difference would be how much you can defer or how it is set-up.
A 457 Plan is a defined contribution retirement plan established by state and local governments, tax-exempt governments and tax-exempt employers.
Just like a 401(k), the eligible employees can elect to make salary deferral contributions to the 457 plan. The earnings grow on a tax-deferred basis and contributions are not taxed until the funds are distributed.Â Employees are allowed to defer up to 100% of compensation as long as it does not exceedÂ the applicable dollar limit for the year.
Employers or employees through salary reductions contribute up to the IRC 402(g) limit ($16,500 in 2009 and 2010) on behalf of participants under the plan.
Similar to 401k, 457 plans also has a matching contribution provisions and is also subject to the same contribution limitations.
403 b Plan
A 403b Plan, also known as a tax-sheltered annuity (TSA) plan, is aÂ defined contribution retirement plan for employees of public schools,Â tax-exempt organizations and certain ministers (certain 501(c)(3) tax-exempt organizations).
Generally, retirement income accounts can be invested in either annuities or mutual funds. Employees can elect to make salary deferral contributions that are usually limited by regulatory caps.
Individual accounts in a 403(b) plan can be any of the following types:
- A custodial account, which is invested in mutual funds
- An annuity contract, which is provided through an insurance company
- A retirement income account set up for church employees
Who Can Participate in a 403(b) Plan?
The following employees are eligible to participate in a 403(b) plan.
- Employees of tax-exempt organizations established under section 501(c)(3) of the Internal Revenue Code. These organizations are usually referred to as section 501(c)(3) organizations or simply 501(c)(3) organizations.
- Employees of public school systems who are involved in the day-to-day operations of a school.
- Employees of cooperative hospital service organizations.
- Civilian faculty and staff of the Uniformed Services University of the Health Sciences (USUHS).
- Employees of public school systems organized by Indian tribal governments.
- Certain ministers (explained next).
Ministers. The following ministers are eligible employees for whom a 403(b) account can be established.
- Ministers employed by section 501(c)(3) organizations.
- Self-employed ministers. A self-employed minister is treated as employed by a tax-exempt organization that is a qualified employer.
- Ministers (chaplains) who meet both of the following requirements.
- They are employed by organizations that are not section 501(c)(3) organizations.
- They function as ministers in their day-to-day professional responsibilities with their employers.