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Sabtu, 31 Maret 2018

What is a 457 Plan? | Voya Financial
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The 457 plan is a type of nonqualified, tax advantaged deferred-compensation retirement plan that is available for governmental and certain non-governmental employers in the United States. The employer provides the plan and the employee defers compensation into it on a pre-tax or after-tax (Roth) basis. For the most part the plan operates similarly to a 401(k) or 403(b) plan most people are familiar with in the US. The key difference is that unlike with a 401(k) plan, there is no 10% penalty for withdrawal before the age of 55 (59½ for IRA accounts) (although the withdrawal is subject to ordinary income taxation). 457 plans (both governmental and non-governmental) can also allow independent contractors to participate in the plan where 401(k) and 403(b) plans cannot.


Video 457 plan



Changes with EGTRRA 2001

The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made a number of changes in how governmental 457 plans are treated, the most notable of which is that the coordination of benefits limitation was removed. This allows a person whose employer has a 401(k) or 403(b) and a 457 to defer the maximum contribution amounts to both plans instead of coordinating the total and only being able to meet a single limit amount. Thus a participant can contribute the maximum $18,000 for 2017 into their 401(k) and also the maximum $18,000 into their 457 plan. If that person's age is at least 50 at the end of the current tax year, they can contribute the additional catch up amount into each plan also, meaning an additional $6,000 into the 401(k) and another $6,000 into his governmental 457 (catch-up contributions are not provided for non-governmental 457 plans). The total would then be $48,000 deferred instead of the $24,000 [18,000 + 6,000] that would have been allowed if the coordination of benefits provision had not been repealed in regard to the governmental 457 plan. As a result, many governmental employers have now set up 457 and 401(k) plans for their employees, and non-profit employers have set up 403(b) and 457 plans each allowing their employees to invest in both. Some state universities and school districts have access to all three tax-deferred plans. However, the total combined annual contribution to 401(k) and 403(b) plans is subject to the $18,000 limit and $6,000 catchup limit.

Other notable changes made in the EGTRRA legislation were increasing the maximum deferral amount from the approximately $8,500 that was previously allowed to the same maximum elective deferral amount that 401(k) plans and now 403(b) plans allow, and easing restrictions on some plan rollovers. Governmental 457 plans may be rolled into other types of retirement plans with few restrictions beyond the normal ones for any other type of employer provided plan, which includes separation of service or disability. This includes other gastro-401(k) and 403(b) plans and also IRA's. IRA's have much greater flexibility in withdrawal and conversion privileges. In contrast, non-governmental 457 plans can only be rolled into another non-governmental 457 plan.


Maps 457 plan



Changes with The Small Business Jobs Act of 2010

The Small Business Jobs Act of 2010 enabled 457(b) plans to include Roth accounts, which were previously only available only in 401(k) and 403(b) plans. This change took effect January 1 2011. Contributions to Roth accounts are made on an after-tax basis, but distributions of both principal and earnings are generally tax-free.

Catch-up provisions

The 457 plan allows for two types of catch-up provisions. The first is similar to other defined contribution plans and amounts to an additional $6,000 that can be contributed as noted above. This option for making catch-up contributions is only available under governmental 457 plans. The second option is much more complicated and is available under both governmental and non-governmental plans. It can be elected by an employee who is within 3 years of normal retirement age (and perhaps eligible retirement at any age). This second catch-up option is equal to the full employee deferral limit or another $18,000 for 2017. Thus, a person over 50 within 3 years of retirement and who has both a 457 and a 401(k) could defer a total of $62,000 [18,000 + 18,000 for 457 and 18,000 + 8,000 for 401(k)] into his retirement plans by utilizing all of his catch-up provisions. The second type of catch-up provision is limited to unused deferral limits from previous years. An employee who had deferred the maximum amount of money into the 457 plan every year he was employed previously would not be able to utilize this extra catch-up.


What Is a 457(b) Retirement Plan?
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Governmental and non-governmental plans

There are two primary types of the plans, governmental and non-governmental. Some governmental plans were under 457(g) but those plans may no longer be created. Most governmental and non-governmental plans are 457(b) plans.

Non-governmental plans

Non-governmental 457 plans have a number of restrictions that governmental ones do not. Money deferred into non-governmental 457 plans may not be rolled into any other type of tax-deferred retirement plan. It may be rolled only into another non-governmental 457 plan. Also, money deferred into non-governmental plans is not set aside in a trust for the exclusive benefit of the employee making the deferral. The Internal Revenue Code requires that money in a non-governmental 457 plan remains the property of the employer and not taxable until time of distribution for specific situations as allowed by the original 457 plan or in cases of withdrawals for emergency cash needed situations. If funds are set aside or provided in a separate account for the employee or in the employee's name then that type of 457 Plan is not a tax-deferred plan and becomes a non-governmental 457(b) Funded Pre-Tax Plan.

457(b) (eligible) plans

Employee Retirement Income Security Act (ERISA) legislation has said that non-governmental plans must be limited to some group of higher compensation employees. The level of compensation required is not specified by ERISA, but it must be according to some ascertainable standard that the employer sets. The same highly compensated limit ($115,000 a year for the preceding year of 2014 and $120,000 for the preceding year of 2015) in place for 401(k) discrimination testing would likely be acceptable, as would restricting the plan to some class of employees such as directors or officers. Because of this limitation to higher-compensation employees, 457(b) plans are occasionally referred to as "top hat" plans.

457(f) (ineligible) plans

IRS code section 457(f) allows for non-governmental, non-profit organizations to set up a plan that can be tax deferred and exceed the normal defined contribution employee deferral limit. Ineligible 457 plans are made available because non-profit organizations are not allowed to have another kind of non-qualified deferred compensation plan.

Generally, these deferred amounts would be currently taxable under Section 83 of the Code, unless the employee faces a "substantial risk of forfeiture" which has been clarified by the IRS to mean that in addition to the money remaining available to general creditors of the organization or subject to not vesting if the employee does not stay with the employer for the full vesting period. When the risk of forfeiture is gone, the value of the property given to the employee ceases to be deferred from taxation and is included in current ordinary gross income.

Another plan design, the rabbi trust, gives the employee deferred money in a trust and is funded, but must be available to creditors. This is to make the employer junior to general creditors so that the employee can avoid current inclusion into income.

These general deferral of current income conditions of Section 83 (as explained in Revenue Ruling 60-31) would give the 457(f) plan the deferral of tax desired.

In 2004 Congress passed a tax act which added Section 409A to the tax code and applies to deferred nonqualified compensation which also covers some 457(f) plans. This was in response to the executive bonus plans given to key employees at Enron which allowed them early access to their deferred compensation if financial conditions of the employer deteriorated (i.e., if Enron got into trouble).


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See also

Form 1099-R


Pros And Cons Of Government 457 Retirement Plans | Bankrate.com
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Notes


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External links and references

  • IRS website page regarding 457 plans
  • 403(b) and 457 Plan Feature Comparison Chart (8pp pdf file) at the Wayback Machine (archived November 8, 2004)
  • "IRS 403(b)/457 Online Resource Guide". Archived from the original on 2002-10-20. Retrieved 2004-09-30. 
  • Online Reference Guide for 457 Plans
  • IRS Section 457 plan outline (28pp pdf file)
  • Section 457 of the IRS code - From Cornell Law School
  • Website page regarding 457 plans

Source of article : Wikipedia