What tax benefit do contributions and earnings in a 457(b) retirement plan enjoy?

Contributions and earnings in a 457(b) retirement plan enjoy tax-deferred status, meaning that individuals can make contributions to the plan before taxes are applied. This allows employees to essentially lower their taxable income in the year they contribute, leading to a reduction in their current tax liability.

Additionally, the earnings on those contributions grow without being taxed until they are withdrawn, typically during retirement when the individual may be in a lower tax bracket. This mechanism allows the retirement savings to accumulate more effectively over time, giving participants a greater financial advantage as they approach retirement. Hence, the focus on tax deferral distinguishes 457(b) plans from other options, as it does not impose immediate tax consequences on contributions or accruals of earnings, unlike the taxable treatment of some other accounts.