NC 457 Plan: A Comprehensive Guide to Deferred Compensation

The NC 457 plan is a type of deferred compensation plan offered by the state of North Carolina. It's a great way for state employees to save for retirement.

Eligible employees can enroll in the plan, which allows them to contribute a portion of their salary on a pre-tax basis. This can help reduce their taxable income and increase their take-home pay.

The plan offers a range of investment options, including mutual funds and target date funds. Employees can choose from these options to create a diversified portfolio that meets their individual needs.

Contributions to the NC 457 plan are made on a pre-tax basis, which means they are not subject to federal income tax until withdrawal. This can help reduce an employee's tax liability over time.

A 457 plan is a type of retirement savings plan that can help you save for the future. Pre-tax contributions to a 457 plan reduce your taxable income for the year, and the contributions and associated earnings are not subject to tax until withdrawal.

You can contribute to a 457 plan up to the annual contribution limit, and the plan allows you to invest your assets among the investment choices offered by your plan. The dollars you contribute and the earnings on those dollars belong to you, and your employer must keep these assets separate from their own.

A key benefit of a 457 plan is that you can potentially grow your savings through tax-deferred growth. This means that your contributions and earnings can compound over time, helping you save more for retirement.

Here are some key features of a 457 plan:

It's worth noting that the annual contribution limit for governmental 457(b) plans applies to contributions from both the employee and the employer. This means that you should check the contribution limits for the current calendar year to ensure you're taking advantage of the plan's benefits.

You can contribute up to 100% of your includable compensation or the annual contribution limit, whichever is less, to your NC 457 plan. The annual contribution limit for 2025 is $23,500.

If you're 50 or older, you can contribute an additional $7,500 for a total of $31,000 in 2025, but you can't use both age-based and service-based catch-up options in the same year. The higher of the two options applies.

Your employer's contributions count toward your contribution limit, so if your employer contributes $5,000, the maximum amount you can contribute in 2025 is $18,500 (plus catch-up contributions if eligible).

There are two types of catch-up contributions: age-based and service-based. Age-based catch-up allows you to contribute an additional $7,500 if you're 50 or older, while service-based catch-up allows you to contribute up to two times the annual contribution limit if you're in the last three years prior to normal retirement age.

Here's a summary of the catch-up options:

Keep in mind that the maximum catch-up limit is the greater of $10,000 or 150% of the regular catch-up limit for participants ages 60 to 63 before the end of the tax year.

You can control how your investments are made in an NC 457 plan by choosing from options offered by your employer’s plan.

A typical plan includes a wide range of options, from conservative stable value funds to aggressive stock funds.

Employees can build a diversified portfolio of various funds, selecting a mix of investments that suit their risk tolerance and financial goals.

MissionSquare Retirement’s Guided Pathways services provide plan employees with access to financial consultants and Certified Financial Planner™ professionals for specific investment advice.

You can also choose a simple yet diversified target-date or target-risk fund, which automatically adjusts your investment mix as you get closer to retirement.

A 457 plan offers several benefits that make it an attractive option for employees. Contributions are made on a pre-tax basis, reducing taxable income and growing tax-deferred until withdrawal.

One of the key advantages of a 457 plan is the catch-up option for employees over age 50. They can contribute on top of the limit for the year, allowing them to increase their savings over time.

Employees can also take advantage of the Pre-Retirement Catch-Up Provision, which allows them to contribute an additional amount on top of the normal contribution limit between the ages of 60, 61, 62, and 63.

Here are some benefits of a 457 plan:

With a 457 plan, employees can lower their taxable income and invest in retirement savings, similar to a 401(k) plan. However, contributions made to a 457 plan may not be matched by the employer like a 401(k).

You can withdraw from your NC 457 plan when you leave employment, and you have the ability to take payments as needed or request scheduled automatic payments. This way, you maintain control over your investments and continue to benefit from tax deferral even after you leave your employer.

You may be able to make withdrawals after a certain age, which varies based on the plan, or due to an unforeseeable emergency. Some plans may also offer a loan option.

Withdrawals are generally taxable, but the 10% penalty tax does not apply to distributions prior to age 59½. This is a key difference between 457 plans and other retirement accounts.

However, required minimum distribution (RMD) rules apply to 457 retirement accounts. An RMD is the minimum amount that you must withdraw annually in retirement, and it begins when you reach 73 and are no longer working for that employer.

You'll need to make sure you're withdrawing in line with the RMD, or you'll face penalties. In most cases, the retirement plan administrator will inform you what your RMDs are.

Here's a breakdown of the key tax implications to consider:

Note that 457 plans are not subject to the 402(g) limit, which means you can participate in a 457 plan in addition to another salary deferral plan and contribute up to the salary deferral limit in each plan. This can be a significant advantage, especially if you're trying to maximize your retirement savings.

You'll need to take required minimum distributions (RMDs) from your NC 457 plan by April 1 following the year you turn age 73 and by Dec. 31 each subsequent year.

If you're still working for the employer sponsoring the plan, you may delay your RMDs until April 1 of the year following retirement if the option is available in your plan.

You won't need to take RMDs from your Roth 457(b) account.

Here are the RMD rules to keep in mind:

It's up to you to make sure you're withdrawing in line with the RMD, and there are penalties for not doing so. The retirement plan administrator will inform you what your RMDs are in most cases.

You can take a loan from your NC 457 plan, but the amount you can borrow depends on the amount you have in the plan and whether you have other outstanding loans. Loans are available from a minimum of $1,000 to a maximum of $50,000.

To qualify for a loan, you must be eligible to take a loan from the plan, and the amount you can borrow may depend on the amount you currently have in the plan that is eligible for loans. If you have money in other employer's plans, you may be able to transfer or roll it over to the plan to increase your maximum loan amount.

You can also choose to receive regular income payments from your NC 457 plan, known as systematic withdrawals. These withdrawals can be made on a semimonthly, monthly, quarterly, semiannual or annual basis.

Here are some key details about loans and withdrawals from your NC 457 plan:

Loans are available from a minimum of $1,000 to a maximum of $50,000 from each employer that you are eligible to take a loan from.

The maximum loan amount available to you is calculated based on the total accumulations in your contract, minus any Roth accumulations.

You can borrow money from your 457(b) plan to cover unexpected expenses, but be aware that you'll need to repay the loan with interest.

To determine how much you can borrow, consider the amount you currently have in the plan that is eligible for loans and whether you have other outstanding loans.

If you have money in other employer's plans, you may be able to transfer or roll it over to the The University of North Carolina System retirement plan to increase your maximum loan amount.

Prior to rolling over, consider your other options, such as leaving money in your current plan, withdrawing cash, or rolling over the money to an IRA.

Contact TIAA or your HR Office to verify details of your plan(s) in regards to loan availability and transfer/rollover loan eligibility.

In-service employee withdrawals are a type of withdrawal that allows active employees to take a portion of their 457(b) plan's account balance without demonstrating a specific financial need. This is also known as an in-service distribution or in-service withdrawal.

You can roll the money over to another IRA or qualified plan or annuity without tax penalty if you do so within 60 days. This is a great option to consider when thinking about in-service withdrawals.

Some companies will allow active employees to make in-service withdrawals, but it's not always at the discretion of the employer or specific to this plan. This means that not all employers may offer this option, so it's essential to check with your HR department or plan administrator to see if it's available.

To be eligible for in-service withdrawals, you must still be employed by the company sponsoring the plan. Additionally, you must not have made contributions within the last 24 months and must not have made this type of withdrawal request before.

Here are the requirements for making 457(b) In-service withdrawals if your plan balance is $5,000 or less:

Keep in mind that in-service withdrawals may not always be available, so it's crucial to review your plan documents and consult with your HR department or plan administrator to understand the specific rules and requirements.