A 457 is a nonqualified, employer-sponsored deferred compensation plan for employees of state and local government agencies and some tax-exempt organizations. Eligible employees are allowed to make salary deferral contributions to the 457 plan. Earnings grow on a tax-deferred basis and contributions are not taxed until the assets are distributed from the plan.
- Eligible employers - A state, political subdivision of a state (such as a city or town), any agency or instrumentality of a state or political subdivision of a state (such as a school district), and any tax-exempt organization except for a church or synagogue or an organization controlled by a church or synagogue.
Types of plans
- Eligible -A plan that includes limits on the employee contributions to the plan. Receives favorable tax treatment.
- Ineligible - A plan providing for greater employee deferral of compensation, generally designed for highly paid executives. Receives no favorable tax treatment.
Contribution limits for eligible plans
- Basic limit - $17,500 (2014).
- 50-or-over catch-up contributions limit - $5,500.
3-year-old catch-up provision -Applies during participant's last three years before plan's normal retirement age. Limited to lesser of:
- $35,000 (twice basic annual limit for 2014) or;
- The basic annual plus underutilized basic annual limit plus underutilized basic annual limit in prior years.
- Not available to those utilizing the 50-or-over catch-up provision.
- Double dipping - Contributions to a 457 plan do not reduce contributions to other types of deferred compensation plans such as 401(k) or 403(b) plans. This would allow an employee under age 50 to contribute $17,500 to a 403(b) and another $17,500 to a 457 plan if both are offered.
- Permitted after severance from employment.
- May permit loans and distributions for unforeseen emergencies or small, inactive accounts.
- No penalty for withdrawal before age 59 1/2.
Keogh Plans (HR-10)
RetirementFind out why contributions to 401(k) retirement plans are limited, including what the current contribution limits are and how limits encourage participation.
Financial AdvisorThese plans resemble 401(k) plans in many respects, but are specially designed for nonprofit entities.
RetirementThis plan has become one of the most popular retirement options. Find out why.
RetirementHere's what the limits look like for 2016, compared to 2015 (the taxes you'll file in April).
RetirementSee the differences that may cause an employer to choose one plan over the other.
RetirementThese plans aren't widely used, but they fill a specific niche for employees in certain situations.
RetirementGiven the fairly high compensation limits on these retirement plans, most workers can pitch in more than they currently do.
Managing WealthLearn about the two types of deferred compensation plans that nonprofit companies can use to allow high-ranking employees to increase their retirement savings.