Maximum deferred into 457

[Guest margmt]

The following two plans are offered to the employee: 401k and 457 (governmental). What is the maximum that can be deferred for 2006? The employee can catch up the full three year amount on the 457 plan. I think it is 15,000+15,000 for 457 and another 15,000 for 401k for a total of $45,000. Does this sound right?

Thanks

[Guest mjb]

See IRS pub 525 P 8 for determining catch up deferrals under a 457 plan. 457 contributions are not aggregated with 401k contributions.

[Randy Watson]

While we're on the topic of 457 catch-ups, how would the "special catch-up" rule work with a newly established 457(b)? Under the special catch up rule, an eligible participant could contribute the lesser of: (1) 2 times the maximum deferral limit or (2) the underutilized amount. The underutilized amount is defined as the maximum deferral limit for the year, plus the maximum deferral limit for any prior taxable year less the annual deferral made for that year. So, does this mean that the "underutilzed amount" for a catch up eligible participant in a plan established in 2006 would be $29,000 ($15,000 for 2006 + $14,000 for 2005)? Or would it simply be 2 x the annual limit, or would there be no catch-up eligible participants? Please help.

[Guest mjb]

The 457 special catch up only applies to participants who are within 3 years of the normal retirement date of the plan and only for years the participant was eligible to participate in the plan. 1.457-4©(3)(iii).

[Randy Watson]

The 457 special catch up only applies to participants who are within 3 years of the normal retirement date of the plan and only for years the participant was eligible to participate in the plan. 1.457-4©(3)(iii).

The participation requirement appears to only apply in determining the underutilized amount and not whether someone is eligible for the catch up.

[Guest mjb]

what is the difference? Show me the math.

[Randy Watson]

Good point.

[Randy Watson]

This means that that participants in a newly established 457(b) can't make any form of catch up contributions if the sponsor is a tax exempt entity.