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9.6.3 IRC Section 457 Deferred Compensation Plans

Deferred compensation plans are frequently used to provide fringe benefits (typically retirement income) to select personnel. These plans are based on the deferral of an employee's compensation to some future age or date. Investments in life insurance and annuities are authorized for these plans. Life insurance is a popular funding vehicle as the amounts deferred are used to pay premiums on cash value life insurance so that cash values are available to the employee as supplemental income at retirement.

In 2009 the allowed deferred amount was 33 1/3% of the participant's applicable income or $16,500, whichever was less. For the three years preceding retirement, the deferral limit in each year is considered twice the applicable limit.

*Note: Up to $15,500 in 2008.

1
Section 9.6 Review

403(b) plans are for nonprofit organizations.

a) True
b) False
CORRECTTRY AGAIN (Lesson 9.6)
Check your answer

2

The ________ plan is one of the most popular funding vehicles for retirement in existence today and is a defined contribution plan.

a) 401(k)
b) 403(b)
c) Section 457
CORRECTTRY AGAIN (Lesson 9.6)
Check your answer

3

401(k) plan contributions are limited to _________ in 2009.

a) $10,500
b) $12,000
c) $15,500
d) $16,500
CORRECTTRY AGAIN (Lesson 9.6.1)
Check your answer

4

The maximum salary reduction for a 403(b) plan is _________ in 2009.

a) $10,500
b) $12,000
c) $15,500
d) $16,500
CORRECTTRY AGAIN (Lesson 9.6.2)
Check your answer

5

The 2009 allowed deferral amount in a Section 457 deferred compensation plan is 33 1/3% of the participant's applicable income or _________, whichever is less.

a) $10,500
b) $12,000
c) $15,500
d) $16,500
CORRECTTRY AGAIN (Lesson 9.6.3)
Check your answer