More Deferred Compensation Options

In addition to your 401(k) retirement plan, there are additional ways to defer income as well as taxes. Deferred compensation plans can include a 401(k) as well as other plans. Essentially, you elect to defer a portion of your compensation, saying, I'll take my wages later. Until "later" comes, usually when you retire, those wages aren't taxed. Not only that, more of your money is working for you over time because taxes on the account's earnings are also deferred until retirement.

Two options for your deferred compensation. 

As a state employee, you have two options for your deferred compensation—the 401(k) plan and an optional 457 plan. This gives you higher limits because you can contribute the maximum allowed by Congress in the 401(k) and then save even more in the 457. And, because each plan may have different tax regulations, contribution limits, hardship withdrawals, and loan options, having two options can mean a better fit with your retirement goals. 

The enrollment packet that you will receive a few weeks after you begin working provides full details along with a handy comparison chart to help you decide how to utilize the 401(k) or 457. Be sure to consider directing your first 3 percent of payroll contributions to the 401(k) plan so that you receive the state match.

If you've directed your first 3 percent into the 401(k) plan so you get the employer match, pick either the 401(k) or 457—or both—for the rest of your deferred compensation. Say, for example, you authorize 15 percent of your salary for your retirement plan. Three percent of the 15 could go into the 401(k) account along with the state's 7 percent. You can then have your remaining 12 percent go into either, or both, accounts—it's your choice.