Benefits Plans - 457(b) Deferred Compensation Plan: How Much Can I Contribute?

General Limit of $17,500

Your limit for making 457(b) elective deferrals is $17,500 for 2014. If your salary is less than $17,500, your limit is your salary. However, if you earn less than $17,500 you cannot contribute your entire salary because you must still pay the FICA (Social Security and Medicare) tax. You must also pay for other benefit plans and other deductions such as parking, United Way, and U.S. Savings Bonds.

Age 50 or Older Limit of $23,000

If you are age 50 or older by the end of the calendar year, your limit is $23,000.

Your Per Paycheck Contribution

After you determine your annual limit, subtract any contributions made during the same calendar year to another employer’s 457(b) plan. Divide the remaining amount by the number of pay periods left in the calendar year to determine your per paycheck contribution.

Your 457(b) salary deferral contribution will continue until you change or cancel it by submitting a new Salary Deferral Agreement. If you reach the annual limit before the end of the calendar year, the contributions will be suspended for the balance of the year. It will generally resume automatically the following January.

If You Retire or Terminate

Your limit for the year does not change because you retire, terminate employment, take a leave of absence, or are placed on a layoff ( RIF). You may reach your limit by increasing your 457(b) contribution before the event occurs.

You have one 457(b) limit no matter how many employers or plans you have. If you have reached the IRC 457(b) limit while at U-M and then go to work for another employer, you may not be able to contribute to their 457(b) plan until the following calendar year. You will need to carefully coordinate your elective deferrals if you plan to work for another employer and want to contribute to their 457(b) plan.

Vacation Payoff

If you are eligible to accrue vacation, any unused accrual at termination of employment or retirement will be paid to you. This payment will not have the 457(b) contribution taken if you are enrolled in the plan.

Do Not Exceed the Limit

The M-Pathways payroll system monitors your year-to-date contributions and will automatically suspend them for the rest of the calendar year if you reach the IRC limit.

This process only tracks your deferrals at U-M. If you contribute to another employer’s 457(b) plan during the same calendar year, you will need to carefully monitor your combined deferrals so they do not exceed IRC limits.

Elective deferrals to other types of plans that do not reduce your U-M 457(b) limit include:

  • 403(b)
  • 401(k)
  • 408(k)(6) Salary Reduction Simplified Employee Pension Plans (SARSEPs)
  • SEP-IRAs
  • SIMPLEs (Savings Incentive Match Plans for Employees)

Consult with a tax advisor if you have questions about the need to aggregate your combined elective deferrals so you do not exceed IRC limits.

It is your responsibility to make sure your combined contributions to all plan types do not exceed IRC limits.

Next: Rollovers into the 457(b) Plan

Limitations
The University of Michigan in its sole discretion may modify, amend, or terminate the benefits provided with respect to any individual receiving benefits, including active employees, retirees, and their dependents. Although the university has elected to provide these benefits this year, no individual has a vested right to any of the benefits provided. Nothing in these materials gives any individual the right to continued benefits beyond the time the university modifies, amends, or terminates the benefit. Anyone seeking or accepting any of the benefits provided will be deemed to have accepted the terms of the benefits programs and the university's right to modify, amend or terminate them.