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IRC 457(b) Deferred Compensation Plans

Plans of deferred compensation described in IRC section 457 are available for certain state and local governments and non-governmental entities tax exempt under IRC 501. They can be either eligible plans under IRC 457(b) or ineligible plans under IRC 457(f). Plans eligible under 457(b) allow employees of sponsoring organizations to defer income taxation on retirement savings into future years. Ineligible plans may trigger different tax treatment under IRC 457(f).


General Questions
 

Who can establish a 457(b) plan?
 

The organization must be a state or local government or a tax-exempt organization under IRC 501(c).

 

How do 457(b) plans work?
 

Employers or employees through salary reductions contribute up to the IRC 402(g) limit ($17,500 in 2014 and $18,000 in 2015) on behalf of participants under the plan.
See 457(b) plan contribution limits.
 

What are the advantages of participating in a 457(b) plan?
 

There are significant tax advantages for participants in a 457(b) plan:

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

  • Earnings on the retirement money are tax-deferred.

Can a 457(b) plan include designated Roth accounts?
 

Yes, a governmental 457(b) plan may be amended to allow designated Roth contributions and in-plan rollovers to designated Roth accounts.


Publications:

Pub. 4484, Choose a retirement plan for employees of tax-exempt and government entities (schools, hospitals, churches, charities

 

Resources:
 

Guidance:
 

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. 

Rev. Proc. 2004-56, 457(b) Model Language
 

Related Guidance:
 

Notice 2007-7, Pension Protection Act Guidance

Final 415 Regulations

Notice 2005-5, Automatic Rollover

Rev. Rul. 2004-57, Union Administered 457 Plan

Rev Rul 2004-12, Rollovers to Eligible Retirement Plans

Notice 2003-20, 457(b) Reporting Requirements

IRC 501(c)(3)
 

Additional Resources:

Automatic Contribution Arrangements FAQs

Unforseeable Emergency Distributions from 457(b) Plans

 

Page Last Reviewed or Updated: 23-Oct-2014