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ChuckR

457 And Trad Ira Question

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Is a non-government 457b considered a retirement plan? If I had a plan available to me would I be considered an "active participant" such that I could not contribute to a traditional IRA? The IRS instructions always refer to plans "such as a 403b or 401k". I haven't seen mention of 457.

 

Also, it is my understanding that (at least for a 403 and 401) that you are a participant whether you contribute or not. Is that the case? Thanks!

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According to IRC section 219(g)(5), participation in a 457 plan is not taken into consideration when determining whether you are an "active participant." This section is reproduced below (with emphasis added):

 

(5) Active participant

For purposes of this subsection, the term ''active

participant'' means, with respect to any plan year, an individual-

(A) who is an active participant in -

(i) a plan described in section 401(a) which includes a

trust exempt from tax under section 501(a),

(ii) an annuity plan described in section 403(a),

(iii) a plan established for its employees by the United

States, by a State or political subdivision thereof, or by an

agency or instrumentality of any of the foregoing,

(iv) an annuity contract described in section 403(b),

(v) a simplified employee pension (within the meaning of

section 408(k)), or

(vi) any simple retirement account (within the meaning of

section 408(p)), or

(B) who makes deductible contributions to a trust described

in section 501©(18).

The determination of whether an individual is an active

participant shall be made without regard to whether or not such

individual's rights under a plan, trust, or contract are

nonforfeitable. An eligible deferred compensation plan (within

the meaning of section 457(b)) shall not be treated as a plan

described in subparagraph (A)(iii).

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The reasoning behind this is that the assets in a non-government 457(b) plan are still the employer's assets, not yours, even if you elected the "deferral" from your wages. Thus, these assets are subject to the potential claims of any creditors that knock on your employer's door.

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Guest Joel Frank

The reasoning behind this is that the assets in a non-government 457(b) plan are still the employer's assets, not yours, even if you elected the "deferral" from your wages. Thus, these assets are subject to the potential claims of any creditors that knock on your employer's door.

 

 

Participation in a 457(b) plan maintained by a government or a non-profit is not taken into consideration when determining if an employee is an active member of a plan.

 

"An eligible deferred compensation plan (within

the meaning of section 457(b)) shall not be treated as a plan

described in subparagraph (A)(iii)."

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