401(k) AND 457

[Guest DZZ]

The following is a question an associate on another board had.

We are having a disagreement at work about employees participating in both a 401k and 457b.

Example: A new employee participated in a 401k at her old job. She contributed the maximum of $16,500. Now she works for the government and participates in a 457b. She contributes the maximum of $16,500 by year end. Is this legitimate and allowable?

[Guest LeeNunn]

The limits are no longer coordinated. See IRC Section 457©. In other words, now employees can defer up to the applicable limit in the 401(k)/403(b) plan and then effectively defer an equal amount into the 457(b) plan.

In the old days, the 401(k)/403(b) contributions offset the 457(b) allowable contributions -effectively making the 457(b) limit zero. This is no longer the case.