About 457(b) Governmental Deferred Compensation
Pursuant to IRS Circular 230, MetLife is providing you with the following notification:
The information contained in this material is not intended to (and cannot) be used by anyone to avoid IRS penalties. This material supports the promotion and marketing of insurance products. You should seek advice based on your particular circumstances from an independent tax advisor.
**********************************************************************************************************
WHAT IS A 457(b) DEFERRED COMPENSATION PLAN?
A 457(b) plan is an employer-sponsored deferred compensation plan that allows you to contribute part of your salary toward your retirement savings, while deferring taxes on the income contributed. In some cases, your employer may also contribute to the plan (although Harford County Government does not) on an income tax deferred basis. The plan may be offered by state and local government and other tax-exempt employers and may also be referred to as a Public Employee Deferred Compensation Plan (PEDC), where the 457(b) plan is established by state and local government employers. The following contents only address the 457(b) plan of a governmental employer.
Back to Top
WHAT ARE THE BENEFITS OF PARTICIPATING IN A 457(b) PLAN?
Pretax savings and the power of tax deferral: By making salary reduction contributions to a 457(b) plan, you can reduce your current income taxes. How? 457(b) contributions reduce your taxable salary and are deducted from your gross pay before federal, state (certain exceptions may apply) and local income taxes are withheld. This means that your income tax savings are immediate and reducing your taxable income allows you to save more for retirement. You may be eligible for a nonrefundable tax credit of up to $1000 for contributions made to the plan, depending on your adjusted gross income.
It can be both simple and convenient: Automatic salary reduction can make funding your 457(b) simple and convenient. Once you decide how much to contribute (subject to federal tax and plan limitations), contributions are automatically deducted from your salary and credited to your 457(b) plan account. Want to know how the contribution will affect your paycheck? Ask me, Lisa Fulco, for a PAYCHECK COMPARISON. It will demonstrate the current tax advantages of saving for retirement on a pre-tax basis by calculating your current tax savings.
A Wide Array of Funding Choices: No two individuals are the same; so MetLife offers you a wide variety of funding choices. Whether you're a conservative or an aggressive when it comes to investment, there are funding choices for your preferred investment style. With all these funding choices, how do you know where to begin? MetLife, in association with Standard and Poor's Investment Advisory Services, LLC (SPIAS)1 can help you develop an Asset Allocation Service that can help you:
- Outline your investment objectives.
- Determine whether you are conservative or aggressive or somewhere in between.
- Choose the funding choices that correspond to your objectives and level of risk tolerance.
To take advantage of the benefits of asset allocation, simply mention this service to me, Lisa Fulco, and I am able to assist you.
Professional Investment Management: MetLife offers you funding choices managed by some of the leading financial investment firms in the business. Whether you're interested in the guarantee2 of a fixed interest account or professionally managed stock or bond portfolios, MetLife has a wide selection of funding choices.
Back to Top
HOW MUCH ARE MY EMPLOYER AND I ALLOWED TO CONTRIBUTE?
Generally, the maximum amount you may contribute to a 457(b) plan is:
For 2007 & 2008--- Maximum $15,500 per year
Increased contribution limits were made permanent by the Pension Protection Act of 2006. Contribution amounts are indexed for inflation in $500 increments.
If you want to know exactly how much you may contribute, ask a MetLife Representative to calculate your Maximum Allowable Contribution (MAC). It is important to note that your state's contribution limits may be different than those stated above. Please consult your tax advisor and state taxation agency to determine the rules applicable to your state.
Back to Top
WILL MY 457(b) CONTRIBUTIONS AFFECT MY SOCIAL SECURITY BENEFITS?
No. Social Security credits are determined from your gross income prior to making contributions.
Back to Top
CAN I MAKE WITHDRAWALS?
Generally speaking, plan rules do not allow distributions unless you no longer work for employer maintaining the plan, retire, reach age 70 1/2 or have an unforeseeable emergency as defined by federal income tax regulations. Please check your plan guidelines to see rules regarding withdrawals. Keep in mind that limited access to your account can be beneficial, because it eliminates the temptation to use your money for purposes other than retirement. Also, if you make withdrawals, your will have to pay your current ordinary income tax rate or rates on the amount withdrawn.
Back to Top
ARE "CATCH-UP" CONTRIBUTIONS PERMITTED?
For the three taxable years ending before you reach the plan's normal retirement age, you may be able to use a catch-up provision to contribute additional amounts to the plan. Alternatively, if you are age 50 or older and participate in a 457(b) plan maintained by a governmental employer, you may qualify to make other catch-up contributions. You may not make both types of catch-up contributions in the same year. The combined limits for regular and catch-up contributions if you are age 50 or older are generally listed in the following chart:
For 2007 & 2008 CATCH-UP CONTRIBUTION LIMITS (NO CHANGE FOR 2008) *
Governmental/Employer Plan Maximum Dollar Limit if 50 or Older-----------------------------------------------------------$20,500
Maximum Dollar Limit if One of the Last Three Years Before Year of Plan's Normal Retirement Age ------------------- $31,000
* The catch-up limits represent the maximum dollar limit permitted. Consult your tax advisor to calculate your actual three year limit, as the limitation is available only to the extent of the unused portions of the limitations for the previous years.
Back to Top
HOW WILL I RECEIVE MY FUNDS WHEN I RETIRE?
Once you retire, your employer's plans may allow you to select from several payout options. They may include taking a lump sum, receiving regular periodic payments based on the amount you have saved, or receiving regular payments based on your life expectancy. Whatever you choose, remember that you will pay ordinary income tax on the funds withdrawn.
Back to Top
IS THERE AN ADDITIONAL FEDERAL TAX FOR TAKING EARLY DISTRIBUTIONS?
In general there is no additional federal tax for early (before age 59 1/2) distributions upon termination of employment. However, if you participate in a 457(b) plan of a state or local government employer and are permitted to roll over amounts from IRAs and employer-sponsored qualified retirement plans including section 403(b) plans, distributions from 457(b) plans attributable to such rollovers may be subject to a 10% additional federal tax if you are under age 59 1/2 at the time of withdrawal. (e.g., distributions upon foreseeable emergency prior to severance from employment).
Back to Top
IS MY 457(b) MONEY GUARANTEED?
Funds in governmental 457(b) plans are kept in a trust (or in an annuity contract deemed to be a trust under the federal tax law) where they are protected for participants and their beneficiaries from the plan sponsor's creditors to the extent permitted under the law. Please note there is no guarantee of return on your contribution.
Back to Top
VIEW THE DEFERRED COMPENSATION POWERPOINT PRESENTATION BY CLICKING THE LINK BELOW:
files/21015/457%20DCP%20Presentation%2Eppt
1 Standard and Poor's Investment Advisory Services, LLC (SPIAS) is a separate entity from MetLife and its affiliates.
2 Guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company.
Pursuant to IRS Circular 230, MetLife is providing you with the following notification:
The information contained in this website is not intended to (and cannot) be used by anyone to avoid IRS penalties. This website supports the promotion and marketing of financial services and products. You should seek advice based on your particular circumstances from an independent tax advisor.
Disclosure: MetLife, its agents and representatives may not give legal or tax advice. Any discussion of taxes herein or related to this document is for general information purpo es only and does not puport to be complete or cover every situation. Tax law is subject to interpretation and legislative change. Tax results and the appropriateness of any product for any specific taxpayer may vary depending on the facts and circumstances. You should consult with and rely on your own independent legal and tax advisers regarding your particular set of facts and circumstances.
|
PEANUTS© United Feature Syndicate, Inc.