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Separate from Service
Under current regulations, you can use a 457 deferred compensation plan to set aside as much as 100% of your gross income – up to an annual maximum of $16,500 in 2009, and indexed for inflation in $500 increments. Special rules apply to the last three years prior to retirement, when you may defer up to double the annual maximum.
To qualify for the favorable tax treatment discussed earlier, you must complete a salary reduction agreement: a document authorizing your employer to deduct plan premiums from your salary before any federal taxes are calculated or withheld.
While a trust is established for custodial purposes, and the trust is the owner and legal beneficiary until a distribution is made, you are always fully vested with respect to your plan values. Although the trust will retain the actual policy contract during your employment, you will receive a separate certificate of insurance, outlining your coverage along with a summary of benefits statement.
Depending on the provisions of the Plan document adopted by your employer, money may be distributed from the Plan in the following ways:
- Death before retirement
- Separation from service
- Disability before retirement
- Retirement
- Sudden, unforeseeable financial emergency
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