A 457 plan is named after section 457(b) of the Internal Revenue Code. This is a type of deferred compensation plan for government employees at the state and local level which, generally, includes police officers, fire fighters and teachers. A 457(b) plan can also be established for highly compensated employees of non-profit corporations. A 457(b) account can provide participants with an option to borrow from their account. Participants are required to start taking minimum withdrawals in the year in which they turn 70 ½.
Although 457(b) accounts are considered “non-qualified”, for purposes of dividing the account in the context of a divorce or legal separation, a domestic relations order needs to be entered in order to transfer the assets to the alternate payee in a manner which would result in no tax consequences. It is considered “non-qualified” simply because it is not governed by the same laws that created the 401(K), 403(b) and other employer retirement programs.
A 403(b) plan is also named after that portion of the Internal Revenue Code that created the plan. A 403(b) plan is available for such entities as hospitals, non-profit corporations and schools. A 403(b) plan is similar in many respects to a 401(K) plan and must be divided by a qualified domestic relations order if the benefits are to be divided as a result of a divorce or legal separation. When dividing the retirement plan it is important to determine whether there is a ROTH 403(b) option. This allows employees to make contributions that are taxed but the growth and all withdrawals are all exempt. Tax shelter annuities (TSA) are a type of 403(b) account wherein participant’s invest in certain insurance products known as annuities.
It is important that you fully understand that nature of these plans and how they should be divided before an order is drafted. Please contact The Harrian Law Firm, P.L.C. for further assistance.