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Another tax saving plan -- pretax deduction 457(b)

(2008-04-14 07:35:33) 下一個

For that 230K at Hopkins

What is a 457(b) plan?

A 457(b) plan is a non-qualified tax-deferred compensation plan that works very much like other retirement plans such as the 403(b) and 401(k). Created in 1978 the name refers to the relevant section [457] in the Internal Revenue Code that governs the plan. Two main types of 457 plans exist: governmental and tax-exempt 457(b) plans. This FAQ section will focus on governmental 457(b) plans.

 

Why contributing to 457 (b)?

 

reduce taxable income

save for retirement

contributions and earnings grow tax-deferred

ability to contribute to a 403(b) [or a 401(k)] as well (if offered by employer)

portability — public (governmental) plan money can be moved into a new employer's 457(b), 403(b) or 401(k) if the plan accepts such transfers, or into an IRA.

 

Can an employee contribute to a 457(b) and a 403(b)?
Yes. The 457(b) plan has traditionally covered state and local government employees, which included some teachers. In the past, teachers who wished to contribute to both plans were limited to the total aggregate amount of the 457(b) (only $8,500). The Economic Growth and Tax-Relief Reconciliation Act of 2001 (EGTRRA) repealed coordination of contributions between 457(b) plans and 403(b) plans [and 457(b) plans and 401(k) plans]. This means that employees with enough includable compensation can contribute the maximum elective deferral limit to both a 403(b) and a 457(b) [and a 457(b) and a 401(k)]. For 2008, this is $15,500 for a whopping total of $31,000. Participants eligible for catch-up provisions can include even more. Check with your employer and your vendor for more details. Note: Not all employers offer both a 457(b) plan and a 403(b) [or a 457(b) plan and a 401(k) plan], nor are they required to do so.

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