The 457(b) Deferred Compensation Plan allows you to save for retirement like the 403(b) SRA but has fewer options to take a cash withdrawal while you are still employed with U-M. You contribute a fixed dollar amount with each paycheck; there is no university contribution.
You may enroll in the 457(b) plan without being enrolled in the Basic Retirement Plan or the 403(b) SRA. You also do not have to wait to enroll in the 457(b) until after you contribute the maximum to the 403(b) SRA.
The 457(b) is a good option if you do not need to take a cash withdrawal from the plan before you retire, terminate employment, or reach age 59½. It can be a good option if you contribute the maximum to the 403(b) SRA or have another retirement plan but still want to save more.
Type of Plan
The U-M 457(b) is a governmental deferred compensation plan. You have two options for the type of contributions you make to the plan, which determine whether you pay income tax on contributions to the plan or on distributions from the plan at a later date:
- Tax-deferred contributions with income tax due upon distribution
- After-tax Roth contributions with tax-free qualified distributions
No Income Limits on Roth 457(b)
Faculty and staff at any income level may contribute to the Roth 457(b). The IRS income limit that applies to a Roth IRA offered through a bank or other financial institution ($139,000 for single filers and $206,000 for married couples filing jointly for 2020) does not apply to the Roth 457(b). In addition, your entire 457(b) contribution can be made as after-tax Roth, allowing you to contribute much more than the 2020 Roth IRA limit of only $6,000 ($7,000 if you are 50 or older). The Roth 457(b) may be of particular interest to individuals whose income is above the limit to qualify for a Roth IRA and to those who want to save more after-tax than the Roth IRA permits. Learn more about Roth options.
The following groups are eligible to enroll in the 457(b) Deferred Compensation Plan:
- All regular, active faculty or staff members (including Supplemental Instructional staff), House Officers, Research Fellows, Professional Specialists, GSIs, GSSAs, and GSRAs with a 1% or greater appointment of at least four months duration paid by the university
- Rehired retirees with funding and effort (including emeritus titles)
You must receive earned compensation reportable on a W-2 and subject to federal, state, and FICA tax to be eligible to contribute to the 457(b).
Examples of compensation that may be contributed:
- Base salary and wages
- Incentive payments (Risk Pay) under the Medical Service Plan
- Summer salary for university-year appointees
- Shift and administrative differentials
- Temporary hourly earnings
Examples of ineligible compensation:
- Fellowship, scholarship, and stipends
- After-tax payments
- Long-term disability plan benefit payments
- Worker’s Compensation
Your Contribution Limit
View how much you may contribute to the 457(b) by logging into Wolverine Access Employee Self Service. Select Benefits and then choose Calculate Ret. Contribution to view your 457(b) contribution limit for the current year and the following year. The panel also has a tab you may select to view your contribution limit for the 403(b) SRA.
The Internal Revenue Code limits the total amount you may contribute to all 457(b) plans you have across all employers. The 457(b) contribution limit applies to both tax-deferred and after-tax Roth amounts you make (i.e., there isn’t a separate limit for each type of contribution) and does not apply to Roth IRA contributions
How to Enroll or Make Changes Throughout the Year
Contributions are taken from each bi-weekly and monthly paycheck. However, contributions are not taken from off-cycle paychecks.
You may invest your funds with two investment companies — TIAA and Fidelity Investments. Contributions may be allocated to either or both, and contributions may be distributed among the approved investment funds offered.
If you choose to make after-tax Roth contributions, TIAA and Fidelity Investments will track your after-tax contributions and associated earnings separately within your existing U-M account(s). You will not have separate accounts for your Roth contributions.
Enrollment and changes for the 457(b) plan are effective no sooner than the month after the election is made, per federal regulations. This means enrollments and changes are effective the month after you make the election and it is not possible to change or cancel a contribution amount during the same month you make the election. For more information on enrollment deadlines, visit Enrolling or Making Changes Throughout the Year.
Transfers for Purchase of Service Credit
If you participate in a defined benefit governmental plan (as defined in Internal Revenue Code Section 414(d)), you may request a direct transfer from this plan to the defined benefit governmental plan if the transferred assets are used for the following purposes:
- The purchase of service credit (as defined in Code Section 415(n)(3)(A)) under the defined benefit governmental plan; or
- The repayment of contributions and earnings related to a previous forfeiture of service credit under the defined benefit governmental plan.
TIAA and Fidelity Investments Websites for U-M Faculty and Staff
Visit these sites at any time to open your account, select your investment funds, and name your beneficiary.