The 501 S(c)ene

The latest view on not-for-profit accounting issues

What to know about 457 plans

Taxes relating to 457 plans can be confusing for tax exempt entities. Here are some key points to know:

  • 457b and 457f plans are deferred compensation retirement plans that are offered to a select group of higher compensated or key management employees in a tax exempt entity.
  • Both employees and employers can make contributions to the 457b plan up to a certain IRS limit each year on a tax deferred basis. Only the employer can make contributions to a 457f.

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  • With a 457b plan, contributions are not subject to income tax withholding until a distribution is made from the plan. But amounts are subject to FICA tax generally when the employee becomes vested.
  • With a 457f plan, amounts are subject to both income tax withholding and FICA tax upon vesting.
  • Employee and employer annual deferrals to a 457b plan are reported in Box 12g on the Form W-2. The amounts are reported as wages on Form W-2 with a 457f plan.
  • Schedule J of the Form 990 asks if any of the individuals listed on Schedule J participated in or received payment from a supplemental nonqualified retirement plan (Part I, #4b). If any of the listed employees either participated in or received a distribution from a 457f plan, you must mark “yes” and then describe the arrangement in Part III, including the amounts. You would not mark “yes” for this question if you only had a 457b
  • Taxable distributions from a 457 plan are not reported in Part VII of the Form 990.
  • Deferrals to a 457f plan (because they are taxable) are reported as bonus/incentive compensation on the Form 990.
  • Deferrals to a 457b plan (because they are not taxable) are reported as retirement and other deferred compensation of the Form 990.

 

Colette Kamps, CPA, Partner