Advanced Underwriting Consultants

Ask the Experts – June 19, 2014

Ask the Experts!

The professionals at Advanced Underwriting Consultants (AUC) answer the tax and technical questions posed by producers. Here’s the question of the day.

Question: What is the maximum amount that may be contributed to a section 457(b) plan in 2014?

Answer: The contribution limits for 457(b) plans are different from other employer-sponsored plans, such as 401(k) plans and 403(b) annuities, which both have $52,000 limits with a $17,500 limit on elective deferrals. For example, if an individual participates in two separate 401(k) plans, each plan may generally receive up to $52,000 in combined employer and employee contributions, but the participating employee may only defer a combined $17,500 between the two plans.

The overall contribution limit for 457(b) plans is generally limited to a total of $17,500—this includes both employee deferrals and any employer matching or nonelective contributions. There are three primary modifications to the normal limit.

First, an employee cannot contribute more to the 457(b) plan than compensation from the employer. For example, if he earns $12,000 for the year, the limit is reduced to $12,000.

Second, similar to 401(k) plans and 403(b) annuities, participants age 50 or older may make a catch-up contribution of $5,500, bringing the total to $23,000.

Finally, there’s a special catch-up provision that’s unique to 457(b) plans that allows a participant to make up for previous years in which the participant did not contribute the maximum amount. Under this provision, the annual contribution limit is increased to the lesser of (a) twice the normal limit (generally, $35,000 in 2014); or (b) the sum of the current year’s limit ($17,500) and any unused portion of previous years’ limits.

The $17,500 contribution limit for 457(b) plans is independent from the $17,500 elective deferral limit for other employer-sponsored plans. This means that if an individual defers $17,500 to his 457(b) plan, he may also defer $17,500 to his 401(k) or 403(b) annuity.

Sources: I.R.C. § 457(b); IRC 457(b) Deferred Compensation Plans, http://www.irs.gov/Retirement-Plans/IRC-457(b)-Deferred-Compensation-Plans

Have a question for the professionals at AUC? Feel welcome to submit it by email. We may post your question and the answer as the question of the day.