457 Deferred Compensation Plans
A 457 deferred compensation plan allows you to save and invest money for retirement with tax benefits.
Contributions are made to an account in your name for the exclusive benefit of you and your beneficiaries. The value of the account is based on the contributions made and the investment performance over time.
A 457 plan is designed to supplement your retirement income. While a pension and/or Social Security may go a long way, they are unlikely to be enough. Saving to your 457 plan can help you maintain your desired standard of living.
Pre-tax contributions you make reduce your taxable income for the year. These contributions and all associated earnings are then not subject to tax until you withdraw them. You also may be able to make after-tax Roth contributions which allow for potentially tax-free earnings.
Contribution limits apply - for 2016, you can contribute up to $18,000, up to $24,000 if you are age 50 or over, or up to $36,000 if you qualify for pre-retirement catch-up contributions.
You can enroll online in your 457 plan. Depending on your plan rules, you may also be able to change your contribution amounts online. The following paper forms are also available; contact your employer or your ICMA-RC representative to confirm you can use them:
- 457 Plan Enrollment Form - to participate for the first time.
- Contribution Change Form - to resume contributions if you previously enrolled, or to increase or decrease current contributions.
You control how your account is invested, choosing from options selected by your employer.
A typical plan includes a wide range of options, from more conservative stable value funds and CDs to more aggressive bond and stock funds. You may choose to build a diversified portfolio of various funds, select a simple yet diversified target-date or target-risk fund, or rely on specific investment advice through Guided Pathways.
- To review investment options for your plan, login to your account.
- To learn more about investing for retirement, visit www.icmarc.org/invest.
You can make withdrawals from your account when you leave employment. You have the ability to take payments as needed or request scheduled automatic payments. You maintain control over your investments and continue to benefit from tax deferral even after you leave your employer.
During employment, subject to your employer and IRS rules, you may also be able to make withdrawals after age 70½ or due to an unforeseeable emergency. A loan option may also be available.
Withdrawals are generally taxable but, unlike other retirement accounts, the 10% penalty tax does not apply to distributions prior to age 59½ (the penalty tax may apply to distributions of assets that were transferred to the 457 plan from other types of retirement accounts). For detailed tax information, view Special Tax Notice Regarding Plan Payments.
Have a plan for taking withdrawals from your account - both to manage the tax bill and to provide for your future needs. For guidance, view Making a Smart Withdrawal Decision and our Retirement Education Center website, or contact your ICMA-RC representative.
To request a withdrawal from your ICMA-RC account:
- Log in to your account to see if your employer allows online withdrawals. Select Withdraw Funds from the left-hand menu.
- Or, complete and submit the forms in the 457 Plan Benefit Withdrawal Packet. To obtain a copy, contact Investor Services.
You designate a beneficiary, or beneficiaries, to receive any remaining assets upon your death. Designating beneficiaries can help ensure your assets are paid per your wishes, avoid the potential costs and delays of probate, and allow non-spouse beneficiaries to receive additional tax benefits.