Under this plan, employees may contribute as much as $17,500 (2014) of pre-tax income to an annuity each year. The contribution is automatically deducted from their paychecks.
By investing money in this way before taxes are paid, employees can reduce their current income tax burden. It is permissible to transfer accumulated funds, with no dollar limit, to other qualified IRA annuity plans.
Once such an investment is made, the interest or dividends earned are only taxed as funds are withdrawn. Since the withdrawals are usually made after retirement when the participant is likely to be in a lower tax bracket,less tax is paid and funds accumulate faster.
There are currently over 25 such investment options through four agencies: NEA, VALIC, Lincoln Life, or American Fidelity.
Using this plan, employees may elect to delay receiving a portion of their salary (may not exceed--if more than one 457 plan, combined deferrals must not exceed--$17,500 (2014) or $23,000 (2014) for employees age 50 or over)until some later determined date, usually after retirement.
The deferred income, which accumulates interest in a special fund, is not subject to federal income tax until distributed to the employee.
RSA-1 funds will be invested in the same type of investments and are subject to the same guidelines and limitations as applicable to investments made by the Teacher Retirement System.