Named for a section of the Internal Revenue Code, 457(b) plans help government employees add to their retirement savings in much the same way as 401(k) plans offer retirement help to private-sector employees. Government employees have taken to these plans, in part, because they can get away with shorting Uncle Sam his due. By investing in 457(b) plans, their contributions are made on a pretax basis (before taxes are deducted from paychecks). Contributions are also deducted from gross income at tax time, which can tip those teetering on the edge of a tax bracket to the lower (and, of course, preferred) tax rate. The level you can contribute to a 457(b) plan has a yearly dollar cap but the dollar amount gets a gradual boost each year until 2006. Employers often offer a 457(b) plan to supplement a defined benefit pension plan.
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