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Saving More Through Your 457(b) Plan

Known as one of the best lines of defense in planning for a comfortable retirement, 457(b) plans can be a powerful way to save. Recent IRS updates allow you to save more, and make up for lost time with extra contributions.

Contribute more in 2008
In 2008, the regular pre-tax contribution limit is $15,500. After 2008, these contribution limits may be increased to factor in the effects of inflation.

Bottom line? If you haven’t saved as much as you’d like, now’s your chance.

Make up for lost time
If you’re nearing retirement and feel like you’re "behind the eight-ball" with your savings, there’s some good news. There are two ways for governmental 457(b) participants to catch up, including an enhanced catch-up provision also available to non-governmental 457(b) plan participants.

Age 50+ Catch-up: If your employer is a governmental entity, you may be able to make additional annual "catch-up contributions" to your governmental 457(b) plan account beginning in the year you turn age 50, if your plan allows. In 2008, the Age 50+ catch-up contribution limit is $5,000.



annual limit

Age 50+

Total potential contribution*


*Includes the basic deferral limit and the Age 50+ Catch-up.

457(b) Double-Limit Catch-up: Also known as the “three-year catch-up” or “Special Section 457 Catch-up,” the Double Limit Catch-up is available to 457 governmental and non-governmental employees who qualify. Assuming you have under-contributed to your 457(b) plan in the past, this provision gives you the potential to double your 457(b) contributions** if you are within three full calendar years of your normal retirement age. In other words, if you qualify, you could contribute up to $31,000 to your 457(b) plan in 2008!



annual limit

Double limit

Total potential contribution**


**Includes the basic deferral limit and the Double Limit Catch-up.

It’s important to note that an employee in a governmental 457(b) plan may not use the Age 50+ Catch-up and Double limit Catch-up.

If you’re a taxpayer, you have an additional reason to increase your contributions: lower taxes. In 2004, Congress extended a series of tax breaks, potentially resulting in serious tax savings. Dubbed the “Working Families Tax Relief Act,” the Act reduced most tax brackets by two or more percentage points, increased the child tax credit, and provided greater marriage penalty relief. Many people choose to “put those tax savings to work” by increasing their contributions to their workplace savings plans.

“Max out” on multiple plans

More good news for those with some serious catching up to do: you can now contribute the maximum to your 457(b) plan, regardless of contributions made to another workplace savings plan. As a result, if you participate in two different plans with the same employer, you may be able to contribute the maximum to both plans.

For example, in 2008, if you are under age 50, you could potentially contribute $15,500 to your 457(b) plan, and another $15,000 to your 401(k) or 403(b) plan. If you are over age 50 and you qualify for the maximum Double-Limit Catch-up, you could potentially contribute $31,000 to your 457(b) plan and another $20,500 to your 403(b) or 401(k) plan ($15,500 regular contribution limit plus $5,000 Age 50+ Catch-up). In addition, certain long-service employees may be able to contribute an additional $3,000 to a 403(b) plan.

Take it with you
One of the best things about a governmental 457(b) plan is that you may be able take it with you. When you leave your job, you may be able to roll your eligible pre-tax 457(b) plan assets into an IRA, or in some situations, to another employer’s retirement plan if allowed by the new employer. Your governmental 457(b) account(s) are now portable among all types of plans, including 401(k)s, 403(b)s, other governmental 457(b)s, and IRAs. You can also roll money from 401(k)s, 403(b)s, other governmental 457(b)s and pre-tax IRAs into your current 457(b) plan account if allowed by your current employer. This makes it much easier for you to consolidate and manage your retirement savings.

With the increased opportunities to save through your 457(b) plan, consider taking advantage of those that apply to you. If you start now, it could make a real difference when retirement arrives. To find out how much you can contribute to your 457(b) plan, check out the 457(b) Contribution Limit Calculator.

Visit the Tools & Calculators section for tools and other resources that can help you take maximum advantage of your plan and current tax laws.

† Assuming you have reached the regular contribution limit and any other plan limits.

Fidelity does not provide legal or financial advice, and the information provided above is general in nature and should not be considered legal or financial advice. Consult with an attorney or tax professional regarding your specific legal or tax situation.

Governmental 457(b) plans: Any assets distributed from your governmental 457(b) plan will be taxed as ordinary income in the year withdrawn; if you are under age 59½ at the time of the distribution, a 10% early withdrawal penalty may apply to any amounts which were rolled into the plan from an IRA or a plan other than another governmental 457(b) plan. If the distribution is eligible to be rolled over, but is not directly rolled over to an eligible plan or IRA, 20% mandatory withholding of federal income tax applies. Federal income tax will not be withheld if an eligible plan-to-plan transfer is made to another employer’s 457(b) plan that accepts the transfer. Be sure you understand the federal and state tax consequences of any distribution before you initiate one. You may want to consult your tax adviser about your situation.

Non-governmental 457(b) plans: Any assets distributed from your non-governmental 457(b) plan will be taxable as ordinary income, which will be taxed as wages in the year in which you receive them. Federal income tax will be withheld at the rate in effect at the time of withdrawal unless an eligible plan-to-plan transfer is made to another employer’s 457 plan that accepts the transfer. Be sure you understand the federal and state tax consequences of any distribution before you initiate one. You may want to consult your tax adviser about your situation.

Making rollover contributions to your current employer's plan which consist of assets other than “like” plan assets may result in the loss of favorable capital gains or ten year income averaging tax treatment associated with lump sum distributions from your current plan balance (if applicable). If you are eligible for this special tax treatment, you should consult your tax advisor and carefully consider the impact of making a rollover contribution to your employer's plan.

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