A 457(b) deferred compensation “top hat” plan, sometimes referred to as a nongovernmental 457(b) plan, gives you the opportunity to significantly increase your retirement contributions. It lets you save and invest—with tax advantages—on top of what you can save in other retirement plans like a 403(b) or 401(k) plan.
The 457(b) top hat plan is a valuable benefit that can help you build greater retirement security. It has many of the same features of other workplace retirement plans.
- Convenience: Contributions are deducted from your paycheck so saving is automatic.
- Tax advantages: Contributions are pretax, lowering your taxable income dollar for dollar each year you contribute. Taxes are due when money is withdrawn.
- Growth potential: A 457(b) top hat plan gives you the opportunity to invest your account for growth potential. This allows you to take advantage of the power of compounding, which may increase your account balance through the potential for earnings on your earnings.
- Choice and flexibility: Corebridge offers an array of investment options so you can design a strategy that’s right for you. You can choose from “do it for me” or “do it myself” options, depending on your needs. Either way, a Corebridge financial professional can help you with your planning.2
- Portability: If you leave your job, you can take the money with you. You can choose a distribution option, leave the funds in the plan, or potentially move the money to a 457(b) top hat plan with another employer, if allowed by the plan. Top hat plans cannot be rolled over to any other type of retirement plan, including IRAs.
- Support: You’ll have access to Corebridge’s wide variety of planning and learning resources to help you take action for your future. This includes one-on-one help from a Corebridge financial professional.
A 457(b) top hat plan has some significant differences from other workplace retirement plans. Be sure to understand these differences before investing. Consult with a financial or tax advisor for assistance based on your personal situation.
Contributions can only be made on a pretax basis
- No Roth after-tax contribution option is available.
Assets are owned by your employer
- Savings are considered employer assets until distributed to you and are therefore not protected from creditors should the employer become insolvent.
The annual limit is separate from other plans
- The 457(b) contribution limit does not count toward the limits of other employer-sponsored plans like 403(b) or 401(k) plans. This gives you the opportunity to save significantly more than in other retirement plans alone.
- The limit does include contributions to both types of 457(b) plans: governmental 457(b) plans and 457(b) top hat (nongovernmental) plans.
- Generally, you may contribute as much as 100% of your annual includible compensation—salary, bonuses and any other taxable benefits—across all retirement plans (including the 457(b) top hat plan) up to the IRS limits.
The annual limit includes any employer contributions
- A single annual contribution limit applies to employee and employer contributions combined.
- Any employer contributions therefore lowers the maximum you would contribute yourself.
Only service-based catch-up contributions apply
- While governmental 457(b) plans offer age-based catch-up contributions starting in the year you turn 50, this does not apply to 457(b) top hat plans.
- The 457(b) top hat plan does offer the service-based catch-up contribution if you are within the last three taxable years ending the year before the year you attain normal retirement age—as specified under the plan—and have undercontributed in prior years.
A 457(b) top hat plan is designed to help you save more for retirement, but there may be cases where you need access to your money sooner. Here are the typical withdrawal rules—including required withdrawals. Your plan rules may differ.
Withdrawals allowed, subject to tax (no additional 10% tax)
- Reaching age 70½ while still employed (in-service withdrawals)
- Unforeseeable emergency: (1) an illness or accident involving you or a dependent, (2) loss of property due to a casualty like a fire or flood, (3) other extraordinary circumstances arising from events beyond your control
Withdrawals required, subject to tax (no additional 10% tax)
- Severance from employment at any age, whether you retire, leave your job or are terminated
- Reaching age 73 (or age 75 for those born in 1960 or later) if still employed
- Death
Important: To avoid an automatic taxable, lump sum distribution, a distribution option (installments, lump sum or deferral, if applicable) must be chosen according to the rules of your plan by the specified deadline.
Loans from this plan are not permitted
- While governmental 457(b) plans often allow tax-free loans, this is not an option with a 457(b) top hat plan.
Most rollovers are not permitted
- Only a plan-to-plan transfer from one 457(b) top hat plan to another 457(b) top hat plan is permitted, if allowed by the plan.
Ready to make the most of your 457(b) top hat plan? Enroll and start contributing today.
For specific questions regarding your situation, speak with a tax professional or contact your Corebridge financial professional. Reach out to us if you don’t have an assigned financial advisor.
1 This information is general in nature, may be subject to change, and does not constitute legal, tax or accounting advice from Corebridge Financial employees, financial professionals or other representatives. Any tax statements in this material are not intended to suggest the avoidance of U.S. federal, state or local tax penalties.
2 Remember all investment involves risk, including possible loss of principal.
RO #5550126