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457 plan Frequently Asked Questions

What is a 457 deferred compensation plan?

457 deferred compensation plans are offered to the employees of state governments, subdivisions of state governments or certain eligible key employees of not-for-profit organizations. They allow participants to save for retirement now and pay taxes later by contributing a portion of their salaries to the plan. Some employers help by making contributions on their employee's behalf.

Your 457 plan may offer investment options through:

a group fixed and variable deferred annuity, or

a selection of retail mutual funds, or

a selection of bank products, or

a combination of all three.

How are contributions to my deferred compensation plan invested?

In some instances, the employer directs all investment of plan assets. Typically, however, money you contribute is invested at your direction in one or more of a variety of investment options offered by your plan. These options are managed by some of the most reputable and recognized names in the industry.

Many 457 plans offer both fixed and variable investment options. The fixed options through bank and insurance company products guarantee principal and interest. The variable options through insurance company products, bank products, or mutual funds provide "variable" returns, which are not guaranteed.

The selection of investment options available to you is determined by your employer and may change from time to time.

How much can I contribute on a tax-deferred basis?

Generally, for 2007 you may contribute the lesser of $15,500 or 100% of compensation unless you are eligible for Catch-up Contributions of $5,000 for a total of $20,500. (calculated prior to 457 contributions). click here for contribution limits table

How can I access the money I have in my 457 plan?

Withdrawals may be made upon any one of the following qualifying events:

Death of participant

Total and permanent disability as defined by IRS regulations

Retirement

Termination of service as defined by IRS regulations

Unforeseeable emergency (1, 2) as defined by IRS regulations

Age 70 1/2 as defined by IRS regulations

1. If allowed by your 457 plan Ordinary income taxes will apply to each withdrawal. Withdrawals are subject to ordinary income taxes. All withdrawals are subject to the authorization of your employer.

2. Unforeseeable emergency: A severe financial hardship resulting from a sudden illness, disability or accidental property loss. Unforeseeable emergency withdrawals must be approved by your employer. Withdrawals are subject to ordinary income taxes.

When am I required to withdraw my money?

You are required to begin receiving benefit payments from your account the later of April 1 of the calendar year following the calendar year in which you:

attain age 70 1/2, or
separate from service with the employer sponsoring your plan.

Failure to begin minimum distributions when required subjects you to IRS penalties equal to 50 percent of the amount that should have been withdrawn but wasn't.

What happens if I leave my current employer?

If you leave your current employer, you have some choices to make about your 457 plan.
Generally, you may:

Leave your money invested in the 457 plan until your required distribution date.

Rollover your assets into your new employer's eligible qualified plan (401(a), 401(k), 403(b), or 457)(if your new employer's plan allow for this transaction) subject to withdrawal charges and/or fees:

Withdraw your money, subject to withdrawal charges and/or fees., distributions are taxable, penalties may apply.

Under certain circumstances you may roll your vested account balance into an IRA subject to withdrawal charges and/or fees.

Withdrawals are subject to ordinary income taxes.

What happens to my 457(b) plan when I die?

Benefits payable upon your death, if any, depend on the allocation of your investment options.

Group fixed and variable deferred annuity

The death benefit available for money you have invested in options under a group fixed and variable deferred annuity depends on your age at death and whether or not your annuity payments have started. In general, at your death, the money invested in your plan will be paid to your designated beneficiary according to the death benefit provisions in the annuity contract.

Mutual funds

The account value in mutual funds as of the date of death will be paid to your designated beneficiary.

All death benefits will be paid in accordance with the payout method you have selected. If you die before selecting a payout method, your beneficiary will be allowed to select one for the distribution of your remaining account value.

NOTE: ALL information contained in this site is for illustration purposes only, and by NO means should be considered individual tax or legal advice under any circumstances whatsoever!

Lynn R. Siewert AIMC
Pension Consultant | Branch Manager
CA Insurance License #00B00579
2005 E. Evergreen Blvd
Vancouver, WA 98661
Ph: 360-750-9626

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