457(b) Special Catch-Up Provisions

A 457(b) Plan is a type of retirement savings plan that is available to employees of certain tax-exempt organizations, such as state and local governments, and non-profit organizations. The plan allows employees to save for retirement on a tax-deferred basis, meaning that contributions made to the plan are not taxed until they are withdrawn in retirement.

The term "Special Catch-Up Provision" refers to a feature in the 457(b) Plan that allows participants who are within three years of their normal retirement age to contribute more than the regular annual contribution limit in the years leading up to their retirement. This provision recognizes that individuals who have not been able to contribute the maximum allowable amount to their 457(b) plan in prior years might want to catch up on their retirement savings as they approach retirement age.

The Special Catch-Up Provision works as follows:

  1. Regular Contribution Limit: The regular annual contribution limit for a 457(b) Plan is determined by the IRS. This limit might vary from year to year based on inflation adjustments. Participants are allowed to contribute up to this limit each year.
  2. Special Catch-Up Provision: If you are eligible for the special catch-up provision, you are allowed to contribute more than the regular contribution limit in the three years leading up to the year in which you reach the plan's normal retirement age. This catch-up provision allows you to contribute up to twice the regular annual contribution limit.
  3. Age Requirement: To be eligible for the special catch-up provision, you generally need to be within three years of the age at which the plan considers you to be eligible for normal retirement benefits. The exact age varies depending on the specific terms of the 457(b) Plan.
  4. Unused Contribution Allowance: This catch-up provision also allows you to make up for any unused portions of the regular contribution limit from prior years during the three-year catch-up period. This means that if you were not able to contribute the maximum amount in prior years, you can contribute more in the catch-up years.

It is important to note the details of 457(b) Plans, including any Special Catch-Up Provisions, can vary based on the specific plan and its governing rules. You should consult with your employer's benefits department and a CERTIFIED FINANCIAL PLANNER™ professional about your 457(b) Plan, and any special catch-up provisions that may apply to understand the tax implications, and make an informed decision which may significantly impact your personal financial situation.