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Double Your Retirement Savings Opportunities: Section 457 Plans for Public School Employees

Double Your Retirement Savings Opportunities: Section 457 Plans for Public School Employees. Presented March 14, 2002 PASBO 47 th Annual Conference. Jerry Wozniak, CFP™ David Blask, CPC.

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Double Your Retirement Savings Opportunities: Section 457 Plans for Public School Employees

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  1. Double Your Retirement Savings Opportunities:Section 457 Plans for Public School Employees Presented March 14, 2002 PASBO 47th Annual Conference Jerry Wozniak, CFP™ David Blask, CPC Securities offered through Lincoln Investment Planning, Inc., Advisory Services and Registered Investment Advisor Member NASD/SIPC

  2. Prior to January 2002 457 Plan contributions limited to $8,500 457 money could not be rolled to an IRA or elsewhere upon separation from service. Only choices were: Take cash and pay tax Leave it where it was If even one dollar was contributed to a 457 plan, your 403(b) limit became $8,500 New Savings Opportunities

  3. Effective After 12/31/2001 New Savings Opportunities • Contributions limited to the lesser of 100% of compensation or: • $11,000 in 2002 • $12,000 in 2003 • $13,000 in 2004 • $14,000 in 2005 • $15,000 in 2006 • Indexed in $500 increments thereafter

  4. Effective After 12/31/2001 New Savings Opportunities • Catch-up Contributions for Individuals age 50 or older • 2002 $1,000 2003 $2,000 2004 $3,000 2005 $4,000 2006 $5,000

  5. Effective After 12/31/2001 New Savings Opportunities • Distributions from 457 plans now eligible to be rolled to an IRA or plan of subsequent employer after separation from service.* *Applies to governmental 457 plans only

  6. Effective After 12/31/2001 New Savings Opportunities • Contributions to a 403(b) are not reduced by 457 plan contributions. • Public school employees can contribute to both plans. • Contributions made within three years of the Normal Retirement Date may double the amount contributed* *Dependent upon the number of years in the plan and prior contributions.

  7. Example: 2002 403(b) 457 $11,000 $11,000* $ 1,000 if over age 49 $ 3,000(maybe) $ 15,000 $11,000 = $26,000 Example: 2006 $15,000 $15,000* $ 5,000 if over age 49 $ 3,000(maybe) $ 23,000 $15,000 = $38,000 457 /403(b) Example * May be doubled under certain circumstances

  8. How Does a 457 Plan Differ From 403(b)? • The 457 plan must be adopted by the employer. Plan is usually governed by the plan document. • Hardship withdrawals are more difficult to obtain. In-service distributions only for “Unforeseeable Hardships” which does not include college or buying a home • Loans usually not allowed

  9. Reasons To Use A 403(b) 403(b)’s have loan provisions – 457(b)’s do not 403(b)’s do not require a plan document – 457(b)’s do Higher limit and catch-up provision Can be used in “Enhanced” format Easy to implement & traditionally already in place 457(b) and 403(b)

  10. Reasons To Use A 457(b) No 10% excise tax upon withdrawals When combined with a 403(b) allows for sheltering of larger sums of money 457(b) and 403(b)

  11. What Are The Steps Needed To Install A 457 Plan • Adopt Plan Documents • Get Board Approval • Structure payroll system for handling 457 contributions

  12. Not necessary to create a new payroll slot May be included on current slot but separately noted Reporting on W-2 How Will The Payroll Department Implement This Plan

  13. Employees will be asking for them They may become a negotiation item If your district offers bonuses or incentives, they will become a priority item Higher compensated employees may ask for them They may benefit you personally Why You Need To Know About 457

  14. Planning Together To “Help You Retire Well” Lincoln Investment Planning, Inc., Broker/Dealer, Registered Investment Advisor Member NASD/SIPC One Station Square, The Landmarks Building, Suite 210, Pittsburgh, PA 15219 412-565-7000 Lincoln Investment Planning, Inc. & School District Administrators

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