A 457(b) plan is an employer-sponsored plan, so you can’t open one on your own, as you can with an IRA. A Section 457(b) plan can only be offered by state and local governmental entities, including most public education institutions, and certain tax-exempt organizations. Note that 457(b) plans sponsored by tax-exempt employers can only cover select management and highly compensated employees.

When it comes to saving for retirement, an employer-sponsored retirement plan offers many advantages:

Employees can contribute pretax salary up to $15,500 for 2008 (adjusted annually for cost of living), or 100% of includible compensation, whichever is less. (Includible compensation is the amount of your compensation from your employer for the year, and includes deferrals to 457(b), 403(b), 401(k), SARSEP, SIMPLE, and 125 Cafeteria plans that your employer sponsors. As with 403(b), 457(b) includible compensation does not include 414(h) governmental pick-up contributions.)

When you are at least age 50, or near your plan’s normal retirement age, you may be able to defer more of your income under one of the special catch-up provisions.

The 457(b) Special Catch-up provision allows you to make up, or “catch up,” for prior years in which you may not have contributed the maximum amount to your employer’s 457(b) plan. The catch-up limit is the lesser of:

1) twice the annual contribution limit, as described previously; or

2) the annual contribution limit for the year plus underutilized amounts from prior taxable years.

In determining underutilized amounts from prior years, only those years you were eligible to participate in the 457(b) plan of the employer can be considered. Years prior to 1/1/1979 cannot be used.

If you are at least age 50, you are eligible to contribute an additional $5,000 over the annual contribution limit (for 2008). However, you cannot use both the 457(b) Special Catch-up provision