Section 457 Retirement Plan Contribution Limits
Individuals can save up to $18,500 through a 457 plan in 2018
The maximum amount a person can contribute to a Section 457 deferred compensation plan is set each year by the Internal Revenue Service after taking inflation into account. This usually results in a slight increase yearly.
You can contribute up to $18,500 as an elective deferral to your employer's 457 plan in 2018. This is up from $18,000 in 2017. Additionally, participants who are age 50 or older can contribute an extra $6,000 as a catch-up contribution, up to $24,500 total.
Total contributions to a 457 plan can't exceed 100 percent of your compensation for the year. Your employer can match your contribution but these amounts will count toward your annual limit. As a practical matter, most government employers do not offer matches.
What Is a 457 Deferred Compensation Plan?
This is a non-qualified, tax-advantaged retirement plan. Many taxpayers invest in 457 plans as a sort of supplemental cushion to Social Security and pension income in retirement.
There are two types of 457 plans. A 457(b) plan is usually available to local and state government workers and those employed by tax-exempt organizations. Less common are 457(f) plans. These might be offered to top-level employees and some non-government employees. Federal government employees have thrift savings plans instead.
You can make contributions to your plan with pre-tax dollars. This reduces your taxable income and can result in a decreased tax bill, particularly when you make annual contributions up to the limit.
The money—and its earnings—are taxable later, however, when you make withdrawals in retirement.
You also have the option to invest taxed dollars. These are considered Roth contributions and you can withdraw them tax-free. Not all employers offer this option.
Your employer will provide you with various investment options for the money in your plan and you can choose from among them.
There's no 10 percent penalty for early withdrawals prior to age 59 1/2 with a 457 plan, unlike with many other retirement vehicles. You can take withdrawals when you stop working and you can usually roll your account into another retirement account, such as an IRA, if you change jobs. You can also just leave your money where it is or you can cash out the plan.
You can name a beneficiary or beneficiaries to receive the account at your death.
Plan Contribution Limits by Year
|457 Plan Contribution Limits by Year|
|Year||Elective Salary Deferral Limit||Catch-up contributions if age 50 or older||Total Possible Employee Contribution Limit||Source|
The 457 plan contribution limit applies to all 457 plans you might have for the current year. For example, if you have two plans, you can contribute $9,000 to one and $9,500 to the other.
You might need to track your 457 plan contributions to ensure that you don't contribute more than the limit if you work at two or more jobs or switch jobs in the middle of the year.
It can be easiest to break the annual limit into equal dollar amounts per pay period if you plan to contribute the maximum allowed. This will allow you to save the same amount each pay period and it will be dollar-cost-averaging into your retirement investments.
A unique feature of some 457 plans is the three-year rule. Normally, you would be able to make these extra contributions after age 50. But what if you plan to retire at age 52? The three-year rule allows you to make extra contributions three years before this time or beginning when you're 49.
457 Plans Permit Designated Roth Accounts
Employers have been permitted to offer designated Roth accounts inside their 457 deferred compensation plans since 2010.
The Small Business Jobs Act of 2010 enabled employers to revise their plans to allow employees to place salary deferrals into a designated post-tax Roth account and to permit employees to convert their pre-tax savings into a post-tax Roth.
457 plans held only tax-deferred accounts before this.
Contributing to 457 and 401(k) or 403(b) Plans
Some employers offer both a Section 457 plan and either a 401(k) plan or a 403(b) plan for their employees. In this situation, employees can contribute up to the annual maximum for both plans.
Reference material from the IRS Web site:
- IRC 457 Deferred Compensation Plans
- Retirement Topics - 457(b) Contribution Limits
- IRS Announces 2017 Pension Plan Limitations (IR-2016-141)
- How Much Salary Can You Defer if You’re Eligible for More than One Retirement Plan?