A tax-exempt deferred compensation program made available to employees of state and federal governments and agencies. A 457 plan is similar to a 401(k) plan, except there are never employer matching contributions and the IRS does not consider it a qualified retirement plan. Earnings are tax deferred until distribution. A major difference between a 457 Plan and a 401(k) is that there are no limits to the amount that can be contributed. An employer can put their entire salary into a 457 Plan.
This is a great way to quickly build up a tax deferred portfolio. Let’s say you are a two income family and the second income is not needed to cover expenses. If that second salary participated in a 457 Plan, the entire salary could be invested each year.
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