403(b)/457(b) question

457s are non-qualified plans for government agencies & non-profits. In a non-qualified plan, earned income is tax deferred for the employee but remains on the books of the employer until time of payout. This works for governments & non-profits because they don't pay tax on profits and hence an investment plan can grow tax-deferred under the employer umbrella. Corporations would need to offset plan growth with expenses to provide tax-deferred growth. The side effect is that this money is not protected from creditors in a bankruptcy. Government agencies don't need to worry about this but non-profits & corporations do. The benefit you then get is penalty free withdrawals before 59 1/2. I know for corporate non-qualified, there are strict rules on contribution & withdrawal schedules to avoid plan participants from making early withdrawals when company financials begin to deteriorate. 457s may or may not have the same type of rules.

That might refer to rolling over the 403 plan into the 457 plan (which may have more investment options).

It might be possible for you to contribute to both plans to the max doubling the amount of tax defferred income.

-- Ron

This is outdated and completely erroneous information. Several years ago, the EGTTERA (?) update changed this for 457 plans. All monies in a 457 are now owned by the employee and are protected from creditor of the employer.

The benefit you then get is penalty free withdrawals before 59

This provision remains. You can take withdrawals from a 457 plan at time of "separation of service" without penalty, regardless of age. Ron Peterson has it correct, that the law allows you to contribute to both plans, effectively doubling the amount you can legally defer.

PERA and ERA are terms with which I'm not familiar. Your employer should clarify this for you.

Elizabeth Richardson

Every source I've googled up say for non-governments, it's still at risk.

"The Internal Revenue Code requires that money in a non-governmental

457 plan remains the property of the employer and is thus available to general creditors of the employer in legal or bankruptcy proceedings."

"The trust requirement that applies to state and local government 457 plans does not apply to a tax-exempt organization that is not a governmental entity. This means that those who participate in a tax- exempt organization's 457 deferred compensation plan run the risk that their employer may not have sufficient funds to pay a participant with."

"A nongovernmental plan may not be funded, except by an investment that is subject to the claims of the employer's general creditors."

"In addition, the money placed into these accounts is not held in a trust for the sole benefit of the employee that makes the deferral. Instead the money remains the property of the employer and therefore is available to creditors."

I know the original poster works for a school district so all of the above clauses don't apply because they can always tax & print (money) their way out of insolvency so what's the point. But I clearly stated that was an issue for "non-profits & corporations".

The OP works for a school district, which is a governmental organization.

Elizabeth Richardson

And I clearly said it didn't apply to governments. What was the argument about then?

Many state sponsored pensions allow participants to purchase service credits (years of service) for time employed with other (usually public) employers. The price is usually a lump-sum percentage of current pay (in SC it's 16%) for each year purchased.

What you are referring to (I think) is the ability of a participant in a public 457 (including 401k, 403b and IRA) to transfer funds tax-deferred directly from their accounts to the state pension plan to pay for the service credits.

The details vary from state to state so you should contact the appropriate state retirement plan for specifics on types of service eligible, price, etc.

-HW "Skip" Weldon Columbia, SC