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The Special Three-Year Catch-Up Provision allows you to contribute more!
What is the Special 457(b) Three-Year Catch-up Provision?
This is a provision of the Internal Revenue Code (IRC) that permits participants who are in a governmental 457(b) plan (such as the SFDCP) and who are within three calendar years of Normal Retirement Age (NRA), whether you retire then or not, to defer additional amounts over the normal maximum contribution allowed. Normal Retirement Age (NRA) is the date designated by you, the participant, for catch-up contribution purposes.
Your NRA can be any age which is not earlier than the earliest age at which you have the right to retire and receive unreduced benefits from your employer's basic pension plan, and not later than the date you attain age 70 ½.
You may only use the Special 457(b) Catch-up provision in one or more of the three consecutive calendar years that END PRIOR to your NRA.
How much can I contribute through the catch-up provision?
The maximum contribution allowed under the catch-up provision is double the normal contribution limit. For example, if the maximum normal contribution is $18,500 (in 2018), the Special Catch-up contributions may be as much as $37,000 depending on how much you “under-contributed” in prior years.
How do I determine my catch-up eligibility?
You are eligible only if: 1) you are within three calendar years ending prior to the calendar year of your NRA; 2) have under-contributed in prior years for which you were eligible; and 3) you have not participated in the Special Catch-up Provision with the City and County of San Francisco Deferred Compensation Plan, or any other employer that offered a governmental 457(b) plan.
If in prior years, you were eligible to contribute to the Plan but did not, or contributed less than the maximum for which you were eligible, you have an unused or “underutilized” amount for catch-up.
For example, if you contributed only $2,500 in a year in which you were eligible to contribute $7,500, you would have an unused balance of $5,000 to catch up on.
To determine your Special Catch-up eligibility, contact a Retirement Counselor at 1-888-SFDCP4U (1-888-733-2748), option 2.
What happens if I enroll in catch-up but then do not retire at my stated NRA?
If you are eligible and enroll in catch-up but then do not retire upon reaching your stated NRA, your catch-up contributions would not be affected. You only need to be within three years of the Plan’s NRA to make catch-up contributions, even if you retire at a later date.
What happens when I complete my catch-up?
Once the Special 457(b) Catch-up period is over, you will automatically be defaulted to the "normal" maximum contribution allowed for the 50+ Catch-up. Your payroll deduction amount will continue “as is” unless you request a change by logging onto the SFDCP website at sfdcp.org or by calling 888-733-2748, Option 1.
Can I stop catch-up in the middle of the three-year period?
Yes, you can, but there are possible repercussions to doing so. Once the NRA has been designated for purposes of using the catch-up provision, it becomes irrevocable. Should you decide not to utilize one of the years, it may not be made up later.
You cannot participate in catch-up in the year of your declared NRA—only in the three calendar years prior to your NRA. However, if you retire sometime during your three-year catch-up window, you can still deposit up to your maximum allowable Special Catch-Up limit for that year.
Special Catch-up deferrals can be stopped, started, or changed during the three consecutive taxable years before the year in which you reach your NRA, but no action will extend this period beyond three years. Moreover, you cannot start another three year catch-up period under any circumstances.
When does the three-year period start?
The three-year period is counted on a calendar year basis. You may commence catch-up at any time during an eligible calendar year; however, whether you start at the beginning or end of the year, that year counts as a full catch-up year.
Can I also contribute using the age 50+ Catch-up provision?
No, you cannot participate in the Age 50+ Catch-up and this Special Catch-up simultaneously.