Farm Bill postponed; Future of New Roth 457 Arrangements in 457 Plans Still Uncertain

March 18, 2008

Before leaving on a two-week recess, the Senate passed a 30-day extension on farm programs legislation, H.R. 2419, commonly known as the Farm Bill, until April 18, 2008. The bill includes a provision that would provide for Roth arrangements in 457 plans – but the future of these new arrangements is uncertain at this time.

For local and state government workers, the provision would level the playing field by permitting 457(b) plans to offer the designated Roth accounts already permitted in 401(k) and 403(b) plans. Under current law, 401(k) plans and 403(b) plans may allow workers to designate contributions as Roth contributions.

Any Roth contribution is taxed as income in the year of the contribution, but investments earnings are distributed tax free if held until retirement. Roth 457 arrangements would fall under the total contribution caps for 457 plans, which is $15,500 in 2008.

A Joint Committee on Taxation report estimates that the Roth 457 provision would raise an estimated $1 billion in taxes over 10 years. The provision is in the Farm Bill because it is part of a revenue package that helps pay for other provisions in the bill. As a result, its prospects for enactment in this bill or other legislation this year are enhanced. For more detailed information about this bill, please click here.