Contributions under an eligible 457(b) plan

Basic rule: General 457 annual contribution limit

There is one limit on the amount of contributions an individual may defer to an eligible 457(b) deferred compensation plan in a taxable year:

  • The annual limit on contributions under Internal Revenue Code (“Code”) Section 457(b)(2)

Under Code Section 457(b)(2), the total of all employee contributions made in a taxable year and employer contributions that are 100% vested in that taxable year in a 457(b) participant’s account cannot exceed the lesser of:

  • $20,500 (for 2022, as indexed annually by the Internal Revenue Service for cost-of-living adjustments in $500 increments) or
  • 100% of the participant’s includible compensation.

Employee contributions subject to this annual contribution limit are both pre-tax employee contributions and (to the extent the 457(b) plan is sponsored by a governmental employer) after-tax designated Roth contributions. 

Note that this annual limit is an individual limit and must take into account all annual vested contributions allocated to the individual’s account under all 457(b) plans the individual has participated in during the taxable year.  

Caution:

  • A participant is always vested in employee contributions made to the 457(b) plan. 
  • Employer contributions that are not vested (i.e., amounts still subject to a vesting schedule) when contributed do not count toward the 457 annual contribution limit in effect in the taxable year of contribution. 
  • Employee contributions and vested employer contributions (along with applicable earnings on those vested employer contributions), count toward the General 457 Annual Contribution Limit in effect in the taxable year that contributions are vested.  This requirement can result in excess contributions in the year vested and can be administratively cumbersome. 

457 Catch-up features

A participant in a governmental 457(b) plan may be able to take advantage of two catch-ups, but not in the same tax year:

  • The Special 457-Year catch-up, or
  • The Age 50+ catch-up.

Caution:  The Age 50+ catch-up is not available to individuals participating in 457(b) plans sponsored by non-governmental tax-exempt organizations.

Special 457 Year Catch-up

A participant who is within the three taxable years prior to the year they attain Normal Retirement Age as defined in the plan document may increase their annual deferral contribution to the extent they have under contributed to the plan in prior taxable years and subject to the following limitation, which cannot exceed the lesser of:

  • Twice the dollar amount in effect for the year (2022:  $20,500 x 2 = $41,000), or
  • The participants annual limit for the taxable year as established under Code Section 457(d)(2) (i.e., the lesser of $20,500 or 100% of includible compensation) plus the total of under contributions from prior years.

Caution:

  • An eligible participant seeking to contribute under the Special 457 Catch-up must make a written election to contribute under this catch-up, including documenting the Normal Retirement Age to be used for purposes of this catch-up.   
  • Determining under contributed amounts in prior years requires a year-by-year analysis.  For more information, including a catch-up worksheet, ask for the Voya brochure “How much can I contribute? Contribution limits for eligible 457(b) Deferred Compensation Plan”.

Age 50+ Catch-up

A governmental participant who attains age 50 (or older) by the end of the calendar year, may contribute an additional amount up to the annual Age 50+ catch-up limit of $6,500 for 2022 (as indexed annually by the Internal Revenue Service for cost-of-living adjustments in $500 increments) if 457 contributions to the participant’s 457 account will exceed at least one of the following limits in that calendar year:

  • The General 457 Annual Contribution Limit; or
  • A lower employer-provided limit under the plan (if any).

Caution: An individual participating in a governmental 457(b) plan who is eligible for both the Special 457 -Year Catch-up and the Age 50+ Catch-up cannot use both catch-ups in the same tax year.  Rather, the individual would be required to use the catch-up provision that permits the greater contribution amount.

As your trusted resource with experience in 457(b) plan administration, Voya Financial® is dedicated to keeping 457(b) plan sponsors and participants updated on current IRS guidance.

 

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This information is provided by Voya for your education only. Neither Voya nor its representatives offer tax or legal advice. Please consult your tax or legal advisor before making a tax-related investment/ insurance decision.
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