457(b) deferred compensation plans are employer-sponsored retirement savings plans, usually offered by municipalities and governmental entities, which allow employees to defer a portion of their current compensation on a tax-advantaged basis for retirement. This plan is an important supplement to pension plans and/or Social Security.
With a 457(b) plan, employees put a portion of their earnings into an employer-sponsored plan on a tax-advantaged basis. Employees may choose between a traditional pre-tax contribution and a Roth contribution.
457(b) participants may defer a maximum of 100% of their gross compensation or an annual dollar limit, whichever is less. The annual contribution limit for 2022 is $20,500. 457(b) plans offer two “catch-up” provisions which allow participants to contribute more than the normal annual contribution amount.
The pre-retirement catch-up provision allows participants to contribute additional dollars to make up for years they were eligible to participate in their current employer’s 457(b) plan but did not contribute the maximum. Under the pre-retirement catch-up provision, a participant can double the ordinary maximum contribution for up to three years. For 2022, participants may contribute an additional $20,500, for a total of $41,000.
Age 50+ Catch-Up
If a participant is age 50 or older at the end of the calendar year, they also can make elective contributions of up to $6,500 for 2022.
|Annual Deferral Limit||$20,500|
|Pre-Retirement Catch-Up Limit||$20,500
|Age 50+ Catch-Up Limit||$6,500
Participants are eligible to withdraw funds from their 457(b) plan when separating from service (for any reason) or for an approved unforeseeable emergency. After separation from service, a participant may rollover their account into a traditional IRA or an existing qualified retirement plan.
How and when a participant chooses to withdraw assets from their account are important decisions. There are many considerations — the form of payment, the tax consequences, and other forms of retirement income. Participants should review several factors before making a decision about distribution, including:
The Benefits Of Participation Include: