Advanced Underwriting Consultants

Question of the Day – July 10

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:  My government employee client is nearing retirement.  She has been eligible to participate in a 457(b) deferred compensation plan, but has not done so in the past.  In her last two years of employment, she will be eligible to receive more compensation than she will need.  Is she eligible to make special catch-up contributions to the Section 457(b) plan?

Answer:  Yes, if she otherwise qualifies.  If the applicable year is one of a the participant’s last three calendar years ending before the year in which the participant attains normal retirement age, she can use the special catch-up provision.

The special catch-up provision permits a governmental Section 457(b) plan participant to double the amount of the normal deferral if the participant failed to fully take advantage of deferrals in prior working years after 1979.

If the participant was previously eligible to participate in a 457(b) plan but did not choose to participate, she can potentially use the under-contribution for those non-participation years in her special catch-up.

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. 

Question of the Day – January 12

Ask the Experts!

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

Question: My client works for a government organization, and contributes to both a Section 457(b) plan and a 403(b) plan.  The client is highly compensated.  Does the client’s participation in the 457 plan affect his ability to maximize contributions to the 403b plan?

Answer: No.

Although 457(b) plans look identical to other salary deferral plans such as 401(k) or 403(b), they are in fact not a qualified plan at all; but are technically, non-qualified deferred compensation plans sponsored by a governmental unit or tax-exempt organization.

This being the case, salary deferral contributions to a 457(b) plan may safely be ignored when looking at multiple job limitations for qualified plans, and conversely, contributions to a qualified plan do not limit contributions to a 457(b) plan.  Thus, a client may make the maximum salary deferral to both a 457(b) plan and a 403(b) plan whether at the same employer or with different employers.  Likewise, employer contributions to a 457(b) plan do not count against the code Section 415 contribution limit of $49,000 per year.

However, if a client is employed by two or more employers, each of which have a 457(b) plan, the employee’s contributions to one 457(b) plan do count against contributions to other 457(b) plans.  The client is limited to one 457(b) plan maximum contribution no matter how many different 457(b) plans the employee might participate in.

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.