If you are a highly compensated top decision-maker in a non-governmental tax exempt organization, you may have access to this retirement savings opportunity. A 457(b) Deferred Compensation Top Hat plan provides top executives with a means to supplement their retirement savings on a tax-deferred basis. As a plan participant, you may fund your account with pre-tax payroll deductions and/or contributions may be made by your employer.
However, with Non-Governmental 457(b) Deferred Compensation Top Hat plans, the deferred compensation is considered to be an asset of your employer until it is paid out to you at retirement, when ordinary income taxes will apply.
Salary deferrals may be made to a non-governmental 457(b) in addition to making the maximum contribution allowed to another employer-sponsored retirement plan [i.e. 401(k) / 403(b)]. This means you can save up to twice the normal maximum contribution limit each year by contributing to both plans.
Furthermore, catch up contributions may be made to a non-governmental 457(b) account in the three years immediately preceding the attainment of “normal” retirement age. This deferral allows for up to twice the normal maximum contribution limit.1
Therefore, if you take advantage of all these opportunities, you could bolster your nest egg near the end of your career by deferring up to three times the normal maximum contribution limit to your retirement accounts.
How do 457(b) Non-Governmental plans operate?
Your employer determines the features of the plan including investment options and optional plan features such as normal retirement age and a default distribution method. You decide how much you wish to invest each pay period, how your contributions will be allocated among the available investment options, and later, how your assets will be distributed. The Legend Group establishes the plan in accordance with your employer’s instructions and directs your contributions to the appropriate investments. When you decide to begin withdrawing from your account, Legend distributes your funds as you advise.
What should I keep in mind when considering a 457(b) Non-Governmental Deferred Compensation Top Hat plan?
Unlike most other employer-sponsored retirement plans, your deferred compensation is not set aside in a trust for your benefit. Instead, it remains an asset of your employer until it is distributed to you. This means that your deferred compensation will be exposed to your employer’s general creditors until distribution.
Participants are eligible to take distributions only upon the attainment of age 70½, separation from service (which can be limited to retirement age) or in the event of an unforeseeable emergency as defined by the IRS. Required minimum distributions must be taken beginning at age 70½.
Non-governmental 457(b) accounts may not be rolled into another type of tax-deferred retirement plan, nor to an IRA – even after separation from service.
1Certain restrictions apply to the Retirement Catch-up.
Ask your Financial Professional to help you determine how much you can defer.
We have answers. Our Financial Professionals have the skills, knowledge and experience to guide you in crafting and implementing an effective plan designed to reflect your unique investment and retirement goals – or simply answer any questions you may have. Let one of our Financial Professionals walk you through the process every step of the way and review which options are best suited for you to help you feel more secure and worry a little less.