Deferred Compensation Plans – Sec 457
Overview
Maximum Contribution is the lesser of:
-
Applicable Dollar Amount
-
100% of compensation
Applicable Dollar Amount:
-
For 2023 - $22,500
-
Double that amount in the last 3 years before retirement
-
Age 50+ Catch-up Amount - $7,500 (2023)
-
Age 50 Catch-up and final 3-yr catch-up cannot be combined
Change in RMD Beginning Age - The SECURE Act was included in the Appropriations Act of 2020. Effective in 2020, the age at which RMDs must begin is 72. However, RMDs for 2020 were waived by the CARES Act.
Related IRS Publications and Forms
-
Pub 525 – Taxable and Nontaxable Income
-
Pub 575 – Pension and Annuity Income
-
Form 5329 - Additional Taxes on Qualified Plans
Deferred compensation plans seldom have any consequence to the preparation of the actual tax return. However, an overview is provided here so you can respond to client inquiries.
Code Section 457 plans apply to deferred compensation plans of state and local governments and tax-exempt organizations.
Employees and independent contractors of state and local governments and tax-exempt organizations (except churches) can participate in an “eligible deferred compensation plan” that allows them to defer receipt of, and exclude each year from gross income, employer contributions made on their behalf to the plan up to the lesser of the applicable dollar limit or 100% of annual compensation. The amount in Form W2, Box 1 (wages) already reflects the deferred and excluded wages, so no adjustment to income is required when preparing the employee’s return.