What is a 457 (b)?
Foothill-De Anza Community College District Payroll Services
Frequently Asked Questions Regarding 457 Plans
What is a 457 plan?
It is a tax-deferred compensation plan. Under Section 457 of the Internal Revenue Code, employees of non-profit 501(3)(c) institutions and public schools can set aside money for retirement on a pre-tax basis through a plan offered by their employer. The federal government created the tax-deferred advantages for 457 contributions to encourage employees to save for their supplemental retirement income.
How does a 457 plan work?
Your 457 contributions are deducted from your paycheck before income taxes are taken out. You don't owe income taxes on your contributions or any earnings on those contributions until you withdraw from the plan.
Who may establish a 457 plan?
Any contracted employee of the Foothill-De Anza College District is eligible to participate in the plan through a payroll deduction.
How do I enroll in 457 Plan?
How does Payroll get my contribution data?
After you enroll into a 457 program at a vendor Web site, the vendor will submit enrollment data to Payroll services through electronic communication by the 15th day of each month. Payroll Services will process the transmitted data in the current pay period.
What is the Maximum contribution?
The annual contribution limit for 2017 is $18,000. Employees who will or have reached age 50 by the end of the year can contribute an additional amount of $6,000 per year.
How often can I change my contribution amount?
You can change your contribution amount once a month by using a Salary Reduction Agreement (SRA). The SRA should be received by payroll services from the approved plan providers by the 15th of the monthin order for us to make the change effective in the same month. The total new amount to be changed should not be less than .00.
Where can I get a Salary Reduction Agreement?
You can get directly from the plan provider's website: AIG - VALIC and Employee Benefits Services Group [EBSG] http://www.eBenefitsServices.net or STRS Pension2 https://calstrspension2.voya.com/eportal/welcome.do
What is the 457 plan withdrawal regulation?
Once you withdraw funds from your retirement plan, your distribution is subject to ordinary income taxes. If you withdraw money from your account before you retire (at age 55), there may be a 10% early-withdrawal penalty payable to the IRS on any amount withdrawn. Please check your vendor's Web site for detailed regulations.
Are there exceptions to the distribution penalty?
According to the IRS, a 10% premature withdrawal penalty can be waived if the employee:
- Reaches age 55 and is retired or no longer works for the District
- Is at least 59 1/2 years old regardless of your retirement status
- Has died
- Becomes disabled
- Encounters financial hardship
What is the minimum distribution rule?
You must begin distributions no later than April 1st of the year following your 70 1/2 birthday. The minimum distribution rule is governed by the IRC Section 72.
Who should I contact if I have more questions?
Your specific vendor or your tax advisor can answer further questions. Please be advised that a 457 plan is your own personal business investment and the District will not provide advice on which investments to select, nor will the District assist with your contribution calculations. Moreover, the District does not endorse any 457 Plan vendors.
You may also consult the following free IRS publications:
- IRS Publication 571 - Tax Sheltered Annuity Programs for Employees of Public Schools and Certain Tax Exempt Organizations.
- IRS Publication 575 - Pension and Annuity Income,
- IRS Publication 590 - Individual Retirement Arrangements (IRAs)
- IRS Publication 910 - Guide to Free Tax Services,
You may access the IRS Web page on the Internet at www.irs.gov ; contact (800) 829-3676 ordering forms and publications; or call (800) 829-4477 to listen to pre-recorded messages covering various topics.