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The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made a number of changes in how governmental 457 plans are treated. The most notable of which is the coordination of benefits limitation was removed. This allows a person whose governmental employer has a 401(k) or 403(b) and a 457 to defer the maximum contribution amounts to both plans instead of coordinating the total and only being able to meet a single limit amount. Thus a participant can contribute the maximum $15,500 for 2007 into their 401(k) and also the maximum $15,500 into their 457 plan. If that person is over age 50 they can contribute the additional catch up amount into each plan also, meaning an additional $5,000 into the 401(k) and another $5,000 into their governmental 457 (catch-up contributions are not provided for non-governmental 457 plans). The total would then be $41,000 deferred instead of the $20,500 that would have been allowed if the coordination of benefits provision had not been repealed in regard to the governmental 457 plan. As a result, many governmental employers have now set up 457 and 401(k) plans for their employees, and non-profit employers have set up 403(b) and 457 plans each allowing their employees to invest in both. Some state universities and school districts have access to all three tax-exempt plans. However, the total combined annual contribution to 401(k) and 403(b) plans is subject to the $15,500 limit and $5,000 catchup limit.


It was a VERY nice loophole while it lasted.
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