457 Deferred Compensation Plan
The Section 457 Deferred Compensation Plan (457 Plan) is a tax-deferred retirement plan that is funded voluntarily exclusively by employee contributions.
It allows you to set aside a portion of your salary on a pre-tax basis through payroll deduction to supplement your mandatory retirement plan and social security. You will not pay any federal state income taxes on the amounts you contribute or on your earnings until the funds are withdrawn from your account.
You may participate in both 403(b) and the School districts or University's 457 Plan in the same calendar year and simultaneously contributes the maximum amount permissible to both plans.
All faculty and staff members who are paid on a continuous basis are eligible to participate in the Section 457 Deferred Compensation Plan. You may begin participation at any time during the year.
The Maximum I may I contribute per a years?
You may contribute the lesser of 100 percent of your reduced salary or $16,500 in 2011. This contribution limit is indexed in $500 increments. Your “reduced salary” is defined as the amount after your required contribution to your basic retirement plan. Your participation in another employer's retirement plan during the year may affect your limit.
You may change or stop your contributions at any time by completing a new Retirement Savings Agreement.
When should I start investing?
The key to investing is to start early and gradually adjust your risk level as you approach your goal. By taking advantage of the power of compounding, you can build wealth with even small, regular investments. The 50 years average return of the S &P 500 is 8.6 % investing $100 per month with an average return of 8% over a number of years. Over a 25-year period, investing this much could add up to over $95,000.
May I change investment funds?
You may change investment funds within a particular company. Subject to the investment company's restrictions, you may change your new contributions and move money you have already invested.
May I change investment companies?
You may change investment companies at any time by completing a new Retirement Savings Agreement and an account enrollment form for the new investment company.
To transfer existing funds, you must complete a transfer form and an account enrollment form for the new investment company. Transferring money from one investment company to another is subject to the company's restrictions. Contact the individual company for more information.
How do I stop my contributions?
You may stop your 457 Plan contribution at any time
Restrictions on withdrawals
Under the Internal Revenue Code, funds in a 457 Plan may be made available to you under one or more of the following circumstances:
• upon severance from service
• attaining the age of 70-1/2
when you encounter an "unforeseeable emergency" as defined by IRC Section 457
Any amount you receive will be treated as ordinary income for federal tax purposes.
Unlike the like 403(b) the 457 Plan does not permit tax free loans to be taken from the Plan and restricts withdrawals while employed unless a participant has an unforeseeable emergency.
You may be able to request a hardship withdrawal if you experience an unforeseeable emergency. However, before your request can be approved, you must show that the financial emergency meets the legally mandated criteria for an unforeseeable emergency and that you have exhausted all other financial resources.
The IRS defines an unforeseeable emergency as the sudden or unexpected illness of you or a dependent, the loss of property due to casualty, or any other extraordinary and unforeseeable circumstances arising as a result of events beyond the control of the participant.
Conversely, events such as divorce or credit card debt do not in and of themselves qualify as unforeseeable emergencies and therefore would not permit you to withdraw will be subject to taxation.
Most 457 Plans do not permit loans to be taken from the Plan and restricts withdrawals while employed unless a participant has an unforeseeable emergency. However, unlike the Optional Retirement Plan, distributions from the 457 Plan are not subject to penalty for early withdrawal before age 59-1/2.
What taxes must be paid when I withdraw my savings?
Money withdrawn is subject to federal and state income tax. Except for "rollovers," annuities, and regular installments over 10 years or more, all other payments will have 20% withheld automatically for federal taxes
Moti Gur is a Registered Representative with and securities offered through
Financial Network Investment Corp and Cetera Adviser Networks LLC.
A registered broker/dealer, Investment advisor and member FINRA/ SIPC
3807 Wilshire Blvd, Suite 1040 Los Angeles, CA 90010 213-385-6237