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457 Vs.rabbi Trust

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Guest Chuck Yanikoski

You really need a specialist in non-qualified deferred compensation plans to answer this in detail.

 

In general, though, a Section 457 plan is a specific kind of retirement plan (though with several significant variations) governed by the Internal Revenue Code and IRS regulations. Rules pertaining to 457 plans cover the gamut: eligibility, contributions, investment options, loans, withdrawals, etc, etc.

 

A rabbi trust is NOT a retirement plan, but is a FUNDING mechanism usable in a number of kinds of non-qualified retirement plans. Such plans are given certain tax advantages provided that (unlike 403(b) and governmental 457 plans) the funds are forfeitable in case of bankruptcy and like contingencies. A Rabbi Trust is a trust set up to SEGREGATE the assets of the deferred compensation plan from the other assets of the sponsoring organization, so that the participants have some additional security that their retirement funds have really been set aside for them (and are not being used, say, to cover payroll). However, the Rabbi Trust itself must be subject to the claims of creditors and therefore the security that it provides remains limited.

 

In some circumstances, a Rabbi Trust can be used in conjunction with a 457 plan, but as far as I know this would only be in the case of a 457(f) or so-called "Ineligible" plan -- i.e., one that is outside of the normal Section 457 contribution limits.

 

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