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February 19, 2009

Deferred Compensation Plan

Your Guide

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Definition

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

Referring Cite

IRC §457(b), §457(e)(1) and § 457(f)(1)

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:

Year

Salary deferral limit

Catch-up contribution limit

2014

$17,500

$5,500

2015

$18,000

$6,000

2016

$18,000

$6,000

2017

$18,000

$6,000

2018

$18,500

$6,000

2019

$19,000

$6,000

2020

$19,500

$6,500

2021$19,500$6,500

Potential COLA increase in increments of $500 for tax years beginning 2006 for salary deferrals and catch-up contributions.

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

Written By

Denise Appleby

Denise is CEO of Appleby Retirement Consulting Inc., a firm that provides IRA resources for financial/ tax/legal professionals. She has over 20 years of experience in the retirement plans field, which includes training and technical consultation.

Denise writes and publishes educational /marketing tools for advisors; available at http://irapublications.com. Denise co-authored several books on IRAs

Denise is a graduate of The John Marshall Law School, where she obtained a Masters of Jurisprudence in Employee Benefits, and has earned 5 professional retirement designations.
She has appeared on numerous media programs, sharing her insights on retirement tax laws.

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