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EightGreylock

457 Catch-up Provision

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Hello,

 

I am in need of a little bit of clarification on the 457 catchup law. Here is my situation.

 

1.) I am a teacher retiring either in 2004 or 2005

2.) I am over the age of 50.

3.) A 457 plan was established in my district in the fall of last year (2003).

4.) I have yet to join the 457 plan.

5.) I have almost $50,000 in sick pay.

6.) I'm currently maxing out on my 403b plan.

 

My goal here is to shelter as much sick pay as possible.

 

Questions:

 

1.) Even though I have not yet joined the 457 plan, if I retire this year, am I eligible to participate in the catch-up? If so, what is the max I can do? Can I go back to 2003 and put away the total $26,000 between both years or is it because I joined the plan in 2004, and not 2003, I cannot do that.

 

2.) What would change from the above if I retired in 2005? I understand the one time three year catch-up rule designation of retirement age for the catchup.

 

3.) If I retire this year, can I designate my retirement age as one year ahead of when I do actually retire and take advantage of the catch-up ?

 

4.) Depending upon the answers to the above three questions, what is my best way to shelter as much of my sick leave as possible?

 

My concern is that someone in our district is saying I can shelter up to $26,000 out of my sick pay regardless of if I joined the plan in 2003 OR 2004. Another person is saying that because I did not join the plan in 2003, I am not eligible for ANY special catchup whatsoever other than the age 50 "bonus".

 

Can anyone out there shed some light on this matter for me?

 

A huge thanks in advance!

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Guest Guest_Redwoods

I suggest you go to the 457 Plan Administrator for the appropriate and correct information. Good luck

 

Joel L. Frank

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Joel's advice is good... the best way to get definitive information is from the plan administrator. However, here are a few GENERAL rules that you should know:

 

1. It's too late to contribute to the 457 plan for 2003. Contributions are made by way of salary reduction, just like your 403(b) contributions. Since you didn't sign a salary reduction agreement prior to the time the money was earned, contributions can't be made retroactively.

 

2. The catch up rule for 457 contributions applies to your last three taxable years ending BEFORE you attain normal retirement age under the plan. You need to check with the plan administrator to determine how the plan defines normal retirement age. Depending on that age, you may be able to take advantage of the catch-up, IF the plan allows for catch-up contributions.

 

3. The plan designates retirement age, not the participant.

 

Hope this is of some benefit to you. Best of luck to you.

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Guest Guest_Eightgreylock

Thanks Michael and "guest",

 

I know I can't go back and put prior salary contributions into the plan but I was hoping I'd be eligible for the catchup so I can put as much of my sick leave as possible.

 

My district allows for the 457 catch-up (there are a few things that I need to do to qualify for it but its very straightforward). My problem is that there is someone saying that because I did not enter the 457 plan in 2003 I can not go back and use the 2003 for any kind of catch-up using my sick leave. I'd love to shelter that $26,000. I won't receive my sick leave until sometime this summer so I have yet to receive the money.

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Dear Eight,

 

I am somewhat confused. In order for you to take full advantage of the catch up provision you will have to be on the payroll for the last 36 months prior to your retirement. How does your unused sick leave fit into this scenario. Please explain, assuming you have 50 days of accumulated sick leave.

 

Peace and Hope,

Joel L. Frank

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