What is a 457 plan?
Several plans exist, the key is there are two major types: Public Plans - State and local government or Private plans- Non-governmental tax-exempt enities.
This web site is dedicated to the State and Local Government Employees but if you have questions regarding the Private plans please ask: email the answer man at firstname.lastname@example.org.
A 457 plan is a retirement plan for state, city, town and government subdivision employees.
It is an employer-sponsored deferred compensation program. You defer paying taxes on that
part of the income you pay into your retirement savings. 457 plans are similar to 401(k) plans.
457 refers to the section (457) of the Internal Revenue Code and was created in 1978.
Not to be confused with the aforementioned Private tax-exempt 457 (b) Plans.
These Private 457 Plans specifically set up for tax-exempt organizations are geared only for upper
management and have their own rules for eligibility, distributions and vesting. See your
Human Resources or benefits representative for details about your plan if you work for a
tax-exempt organization. These plans are for private- non-governmental tax-exempt entities like hospitals, unions, and charitable organizations.
The most important thing to know about a 457 plan is that it can drastically change your life, it is a great benefit and an amazingly simple way to save for your future.
Are 457 plans the same as 401(k) plans?
There are similarities and differences. 457 plans are the same as 401(k) plans in that they
are both salary-deferred plans and both allow tax-preferred status. However, 457 plans are
not subject to certain reporting, disclosure, and discrimination-testing requirements. 401(k)
plans, on the other hand, are always subject to disclosure, reporting, and fiduciary
requirements under the Employee Retirement Income Security Act (ERISA).
What happens to my 457 plan if I switch jobs?
You can transfer the money to a new 457 plan. if your new government employer has one and
allows transfers. You can also withdraw the funds, or keep them where they are until
retirement. or you can roll it into your own IRA and CONTROL YOUR MONEY!
If you are an employee of a tax-exempt organization, different rules may apply.
Check with your employer's Human Resources Department or benefits representative for
details. See 2002 tax law changes or contact us for more information.
What are my rights in a 457 plan?
In a government-sponsored 457 plan, you have the right to contribute part of your salary
to a new 457 plan. Each state and city government has its own rules for the type of benefits
information that must be provided to employees. This information will typically include
information about funding information, eligibility requirements, distribution requirements
Do I get to choose how my money is invested?
Yes,You should check with your employer to explore your investment choices. And, as always, get the facts! It is your money and you worked hard for it. Look for track records expenses and all fees. Just remember, the 457 plan provides you with the option to save money on a pre-tax basis and earn tax deferred interest BUT where you invest it is a whole different thing. Most 457 Plans have many options so make your decisions in two steps: 1. make the decision to start saving for your future 2. decide where the money will be invested.
Who administers my 457 plan?
A plan administrator is hired by your employer to handle your plan and answer any questions
for you. Ask the person in charge of Human Resources or benefits at your place of
employment about whom to contact to answer your inquiries.
When can I start paying into the plan?
Ask your employer. Some allow you to begin paying into your plan right away. Others may
have you wait up to a year before you can begin. Generally, a participant fills out a salary-
deferral agreement prior to the first day of the month in which compensation is going to be
deferred. Sometimes a new employee's compensation can even be deferred for the month
during which the participant was first hired, if the employee completed a salary-deferral
agreement before the first day of work.
457 Plans do not force employers to offer the plan, which means there is a possibility that you are working for an eligible employer and they do not offer the plan. If this is the case let your voice be heard, speak to your employer about adopting a 457 (b) plan.
What does "vested" mean?
This applies if your employer also contributes to your 457 plan. The money the employer pays
into your account might not actually be yours right away. If you leave your job, your
employer might require that you will have worked there for a certain amount of time before
those contributions are considered yours. This is called vesting.
Most employers do not offer a feature in 457(b) Plans, whereby the employer matches your contributions.
If your employer does offer a feature that requires vesting, there are several possibilities:
• That you vest nothing until a certain number of years have passed, and then you become
fully vested, or,
• With each year you remain with your employer, a certain percentage belongs to you.
Either way, you won't be taxed on your employer's contributions until you withdraw them—if
the plan is eligible.
If you work for a tax-exempt organization, your employer will pay in a certain amount of
money after you have been employed there a specified amount of time. Then, the funds move
to you and you are then taxed on them. You should check with your Human Resources
department or plan administrator for details about the rules governing vesting.
How do I contribute to my 457 plan?
First, you determine the percentage or amount of your salary that you would like to pay in.
That amount is then deducted from your paycheck. Then it is deposited into your 457 account
and allocated to your chosen investments. Generally, the amount you defer is shown on your
salary-deferral agreement form and appears on your paycheck. Consult your Human
Resources or benefits representative for details. Different rules apply.
Can someone contribute to a 457 (b) and a 403(b) plan?
Yes. If you happen to be working for an employer that qualifies to have a 457(b) and a 403(b) plan and you make enough money (includable compensation) then you can do both! The Economic Growth and Tax-Relief Reconciliation Act of 2001 (EGTRRA) repealed coordination of contributions between not only 457(b) and 403(b) plans but also 457(b) and 401(k) plans. This means as of 2008, you can contribute (depending on salary that we mentioned above) the max to both $15,500.00 + $15,500.00 for a total of $31,000.00!
What can I contribute?
For 2008, workers are able to contribute the lesser of:
1. the new employee elective deferral limit of $15,500, or
2. up to 100% of includable compensation (must be less than the elective deferral limit).
Note: The total amount you can contribute is updated and indexed annually for inflation.
Can I make after-tax contributions?
No, you cannot.
What are the catch-up provisions in a governmental 457(b) plan?
If you are age 50 or older in year 2008, you may contribute an additional $5,000 above the
2008 elective deferral limit of $15,500. This catch-up option is only available in public
(governmental) 457(b) plans. The 457(b) plan contains a special "catch-up" provision called
the "final three year" provision for those approaching retirement (assuming they haven't
contributed the maximum amount in prior years). This provision, which used to limit
participants to an additional $15,000 over a 3-year period prior to normal retirement age,
now permits up to 200% of the elective deferral limit or $31,000 in 2008.
This can be a great way to stash money away at the last minute and let it grow tax defered!
Will my employer match my contributions?
It depends on your employer. Most 457 plans do not offer a matching feature. Check with
your Human Resources officer or plan administrator. If you do receive employer-matching
contributions, you may be required to work for your employer for a certain period of time
before these contributions become "fully vested" (belong to you).
How soon can I take money out of my plan?
You can withdraw your money once you retire or leave your employer. At that point you must
pay taxes on the amount you withdraw.
You can either withdraw your money gradually, or you can withdraw all the money at once.
If you have under $5,000 in your 457 plan (and you have not made a payment in two years)
you are eligible to withdraw your funds whenever you choose.
Consult your Human Resources or benefits representative if you work for a tax-exempt
organization. Different rules apply.
BUT here is the key- This money was put aside for retirement, do your best to be disciplined and let it sit so it can be there for you when you need it.
What about emergencies? Can I withdraw my money?
For certain "unforeseen emergencies" you may be able to withdraw money from your 457
plan. An unforeseen emergency is something like an unexpected illness, accident, or casualty.
However, other expenses like paying college tuition or buying a house are not "unforeseen
emergencies." For details, please contact your employer's Human Resources or benefits
representative, or your plan administrator.
What is the penalty if I take money out before age 59?
There is no penalty for withdrawing funds before age 59, unlike 401(k) plans. However, it is
taxable as income. While you are still working, you can only withdraw funds under certain
rules. Depending on the rules of your plan, you need your employer's permission to
withdraw the money.
When am I required to take the money out of my 457 plan?
In a governmental 457 plan, you must start withdrawing money no later than April 1 of the
year following the calendar year in which you turn 70. You withdraw the money according to
a preset timetable based on your life expectancy, or you can withdraw it in one lump sum or
any amount in between.
In 2002, new tax laws apply.
Different rules apply if you work for a tax-exempt organization. Ask your Human Resources or
benefits representative for details.
You may continue to contribute and keep your money in the plan if you are still working --
even beyond age 70.
Note: Special rules apply for independent contractors.
What if I inherit somebody's 457 plan?
That depends on whether you are the account owner's spouse, and whether the owner of
the plan died before April 1 (the date for beginning required minimum withdrawals) after that
person turned 70.
If the owner of the plan dies before the age for making required minimum withdrawals, you
have the option to withdraw all the money in the account over your single life expectancy.
This must be done by December 31 following the year of the account owner's death.
Otherwise, you must withdraw all moneys from the account within five years.
Under new rules issued by the IRS, if the 457 owner dies after beginning to withdraw the
required minimums, you may receive the moneys over your single life expectancy.
When I retire, will my 457 distributions affect my Social Security benefits?
Social Security benefits will not be affected. But, distributions will be included in calculating
your total income, which may result in the taxation of your Social Security benefits.
What are the tax advantages to contributing to a governmental 457 plan?
The money you earn is tax deferred. The federal government and most state governments
will defer taxing you on the money you pay in, and they will not tax any of your investment
profits, until you withdraw money. If you invest money prior to paying taxes more of your
money goes to work for you immediately.
For instance, if you pay in $100 (and are in the 28 percent tax bracket), your federal income-
tax withholding will be reduced by $28. That means that your $100 contribution only "costs"
you $72 of your take-home pay.
What does "tax-deferred" mean?
Taxes that you "defer" (or put off paying) now will have to be paid later when you withdraw
What are my investment choices with a governmental 457 plan?
Though it depends on how your plan is structured and what your employer decides, you may
have a number of investment choices. These choices might include a mutual fund of growth
stocks, a bond fund that is income-generating, and funds that have some of each for added
For even greater security (but less growth potential) you could also have a money-market
option security. You may have a variety of investment choices. Check with your employer.
Can I decide how to invest the money in my account?
Depending on your specific plan you usually are allowed choose how to invest the money,
and most plans have many options.
How often can I change my investment allocation?
That depends on your specific plan, but generally most plans allow ample flexibility to
re-allocate your assets.
Where can I learn more about the funds available in my 457 plan?
See your employer's plan administrator details on your investment options. Also, check with
Human Resources or your payroll department. Or, sometimes it is your comptroller's office
that has the best information.