457 Plan

Definition

Also referred to as a deferred compensation plan, is a retirement plan established by a state or local government, a nongovernmental unit of tax-exempt organization, or a tax-exempt non-church entity for its employees. This does not include plans such as qualified plans, 403(b) plans, 403(a) plans and IRAs maintained by those organizations, as those are not considered 457 plans.

Eligible 457 plans are referred to as 457(b) plans and ineligible 457 plans are referred to as 457(f) plans.

Eligible 457 plans, which are Governmental 457 plans or 457(b) plans, can be rolled over to an IRA , qualified plans or 403(b) plan

Ineligible 457 plans cannot be rolled over to an IRA , qualified plans or 403(b) plan

An organization must be a state or local government or a tax-exempt organization under IRC 501(c) in order to be eligible to establish a 457(b) plan.

Employers or employees through salary reductions contribute up to the IRC 402(g) limit (see chart below) on behalf of participants under the 457(b) plan.

Contributions to a 457(b) plan are tax-deferred.

Earnings on contributions to a 457(b) plany are tax-deferred

Referring Cite

IRC §457(b), §457(e)(1) and § 457(f)(1), 457 Final Regulations (T.D. 9075)

Additional Helpful Information

• Individuals may defer up to 100% of their Compensation up to the dollar limit that is in effect for the year to the plan. Individuals who reach age 50 by the end of the year may defer additional amounts referred to as ‘Catch-up’ contributions. The dollar limits for 2002 to 2007 are as follows:

• Employers may choose to make Matching Contributions to the accounts of employees who make salary deferral contributions. However, the aggregate contributions to a participant’s account cannot exceed the limits indicated in the chart above.
• Contributions to 457(b) plans are tax-deferred
• Contributions to 457(f) plans are not tax-deferred, unless there is a substantial risk of forfeiture

Related Articles Tutorial or Other Content

• 457 Final Regulations (T.D. 9075):  Issued July 11, 2003 with a retroactive effective date of January 01, 2002, these regulations encompass the changes made by legislation from the two decades.
• Rev. Proc. 2004-56, 457(b) Model Language