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John Feldt

Roth 457(b)

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Form the article "A provision that would allow Governmental Roth 457 plans was included in the Senate Farm Bill approved on Dec. 14, 2007 as part of the Manager's Package of Amendments (Amendment 3855). The House did not move on the Senate version of the farm bill before the holiday recess and the two will have to reconcile the differences in a conference in early 2008."

 

http://www.icmarc.org/xp/rc/plansponsor/re...illRoth457.html

 

http://www.icmarc.org/xp/rc/plansponsor/regs/updates/2007/20071227FarmBillRoth457.html

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Does anyone know if the bill contains coversion clause, ie, coverting existing 457(b) into Roth 457(b), like it was for IRA-Roth IRA conversion when it was first introduced?

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Form the article "A provision that would allow Governmental Roth 457 plans was included in the Senate Farm Bill approved on Dec. 14, 2007 as part of the Manager's Package of Amendments (Amendment 3855). The House did not move on the Senate version of the farm bill before the holiday recess and the two will have to reconcile the differences in a conference in early 2008."

 

http://www.icmarc.org/xp/rc/plansponsor/re...illRoth457.html

 

http://www.icmarc.org/xp/rc/plansponsor/regs/updates/2007/20071227FarmBillRoth457.html

 

 

 

This doesn't make sense to me ... So please educate me ...

 

A 457 is for "Defferred Compansation" ... It is usually to lower an employees tax bracket ... Sometimes it is the only retirement vehicle and I could see the advantage for a lower tax bracketed individual ... But in most cases it is a way to lower taxable income ... Am I missing something on the 457 boat ??

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1. A 457 is for "Defferred Compansation"

Yes, here we are specifically talking about a 457(b) plan, not a 457(f) plan.

 

2. ... It is usually to lower an employees tax bracket ...

Well, I'm not so sure it usually takes an employee from one bracket to another. For example, a non-Roth 457(b) deferral could move someone from the 25% bracket to the next lowest bracket, but that only happens if the employee is close enough to that next lower bracket to begin with. It is not subject to current income taxes and its amount will reduce box 1 of the W-2 (although it is subject to FICA and will not reduce the amounts in the boxes for social security and medicare).

 

3. Sometimes it is the only retirement vehicle

True, some employers only offer a 457(b) plan.

 

4. "I could see the advantage for a lower tax bracketed individual ... But in most cases it is a way to lower taxable income ... Am I missing something on the 457 boat ??"

Hmmm. I'm not sure you are. The posts above are about the possible Roth 457(b). Right now, a 457(b) distribution is taxable as income, but a Roth 457(b) distribution would not be subject to income tax, none of it, not even the earnings, as long as certain conditions were met. So instead of paying taxes later, the Roth 457(b) would be paying taxes now in exchange for tax-free payments later. Someone in a low tax bracket now would benefit the most if they move up into a higher tax bracket when the money is paid out of the 457(b) plan.

 

I'm not sure this answered you question, so please ask more if you need.

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Not sure the real isseu is, but " in most cases it is a way to lower taxable income " can mean now ( with non-Roth plan) or lalter ( with Roth plan ), so I guess the question is just like that of IRA vs Roth IRA and individual has to take a look at his/her situation to decide. Am I sonfusing myslef here?

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Guest Sierra

 

 

A 457 is for "Defferred Compansation" ... It is usually to lower an employees tax bracket ... Sometimes it is the only retirement vehicle and I could see the advantage for a lower tax bracketed individual ... But in most cases it is a way to lower taxable income ... Am I missing something on the 457 boat ??

 

 

Guru:

 

If you understand the pros and cons of: a Roth IRA/Traditional IRA, a Roth 401(k)/Traditional 401(k) and a Roth 403(b)/Traditional 403(b) you should not have any trouble understanding the pros and cons of a Roth 457(b)/Traditional 457(b).

 

Joel L. Frank

 

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