The 457 deferred compensation plan (deferred comp) is a tax-deferred retirement plan offered by your employer that allows you to save money toward your retirement directly from your pay. It’s designated to be a supplement to your pension and is an additional way to invest long-term. Withdrawals are taxed as ordinary income.
Forty-nine percent of Americans are not confident they’re saving enough to maintain their standard of living in retirement. Another 38 percent are only “somewhat confident”. Deferred comp can help you create a more financially secure future for you and your family. It can provide a simple approach for you to enjoy the benefits of long-term investing. You’re always in control of how to use deferred comp to help achieve your goals.
The money you contribute to deferred comp comes out of your paycheck pretax. That means before taxes come out of your check. This lowers your taxable income. For example, let’s say you pay around 25% in income taxes. Putting $100 in your account only costs you $75 from your take-home pay. That means your $100 contribution only feels like $75, or $75 out of your pocket puts $100 toward your retirement. You won’t pay any taxes until you withdraw your money – usually at retirement. (Then your withdrawals will be taxed as ordinary income.)
Perhaps the easiest thing about a deferred comp plan is contributing. Money is sent automatically from your paycheck to your account. You can establish a good saving habit without difficult. Most people say that because they don’t even see the money they invest, they hardly miss it.