Deferred Compensation Plans
Deferred Compensation Plan FAQs
What is a 457 plan?
Your deferred compensation plan is known as a Section 457 plan and is available to state and local government employees. Contributions to a 457 through payroll deductions are pre-tax which reduces your taxable income.
What is the catch-up provision?
If you're within three years of retirement, you can make larger contributions to get ready for retirement. During those three years, you can contribute more than the annual limit but only if you have contributed less than the maximum in previous years. Check with a plan representative for any changes to this provision.
Is my money safe?
Your 457 Plan is an investment and like all investments there is risk. We've all seen news reports on dramatic increases and decreases in investment performance. These changes can affect both your earnings and principal. Only you can decide what investment options are best for you. Things to consider include how long before you plan to withdraw your funds, your personal comfort level with risk and other personal financial goals. Your personal financial advisor or representative of the deferred compensation plans can assist you in selecting the investment options best suited to your needs. City staff cannot recommend investment options or give financial advice.
Assets in a state or local government 457 are held in trust. This protects them from creditors and potential insolvency of the plan administrator. Each employee has their own account and can direct his or her account balance into any approved investment option. Please note that there are fees to consider with any plan.
When do I get my money?
You must start taking distributions from a Section 457 plan no later than age 70 1/2. According to the minimum required distribution rules, your distributions must be in equal installments, based on your life expectancy and made at least annually.
When do I pay tax on Section 457 plan distributions?
Taxes are payable when you receive your funds.
Can I roll over my Section 457 plan account into a traditional IRA?
Yes, you can roll over all or part of your Section 457 plan account into an eligible retirement plan, such as an Individual Retirement Arrangement (IRA). You can roll over up to the amount that qualifies as an eligible rollover distribution.
Why contribute to a deferred compensation plan?
- Your taxable income is reduced
- You can save more for retirement
- Contributions and earnings grow tax-deferred
- Contributions can be rolled over to a new employer's 457(b) or 401(k) or into an IRA