What type of plan allows employees of non-profit organizations to defer part of their salary?

The Section 457 plan is designed specifically for employees of non-profit organizations and government entities, allowing them to defer a portion of their salary into the plan on a pre-tax basis. This makes it a valuable tool for retirement savings for these employees, as contributions are made from their gross income, reducing their taxable income for the year. Furthermore, these plans often have higher contribution limits compared to other retirement plans, and employees can withdraw funds from the plan upon reaching retirement age or in certain specific circumstances without incurring the typical 10% early withdrawal penalty.

In contrast, while the other options serve various purposes in retirement savings, they do not specifically target non-profit organizations in the same way as the Section 457 plan. A SEP (Simplified Employee Pension) is typically used by small businesses to provide retirement benefits to their employees, but it is not limited to non-profits. The Simple IRA is also another retirement plan that assists employees and small businesses in savings, but this is generally geared toward for-profit entities and has specific employee count and compensation parameters. A Profit-sharing plan is more frequently associated with for-profit businesses, which distribute portions of the profits to employees and is not designed for salary deferrals.