|
Learn more about 457(b) Plans
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:
- Generally, you pay no current federal income taxes on the money you put into the plan until it is time to take withdrawals.
- Generally, you pay no current federal income taxes on any interest or earnings until you take withdrawals, generally at retirement when you may be in a lower tax bracket.
- You have the advantage of investing in professionally managed subaccounts available through your employer’s plan.
- Participating in an employer-sponsored plan can be a quick and convenient way to invest for your retirement.
How much can I contribute?
Employees who are eligible to participate in a 457(b) plan can contribute pretax salary up to $16,500 for 2009 (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) plan rules, 457(b) includible compensation does not include 414(h) governmental pick-up contributions.)
Depending on whether your employer is a governmental entity or a nonprofit organization, 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.
457(b) Special Catch-up Provision
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 your employer can be considered. Years prior to 1/1/1979 cannot be used.
Age 50+ Catch-up Provision
If you are at least age 50, and your employer is a governmental entity you are eligible to contribute an additional $5,500 over the annual contribution limit of $16,500 (for 2009). However, you cannot use both the 457(b) Special Catch-up provision and the Age 50+ Catch-up provision in the same year. You must use whichever is greater.
C09-0122-008
5077445 |
