Deferred Comp §457(f) Tax Calculator
Section 457(f) plans are non-qualified deferred compensation for tax-exempt employers (hospitals, universities, non-profits). Unlike 457(b), there is no contribution cap — but compensation is taxed when substantial risk of forfeiture lapses, not when paid. This creates dangerous tax timing surprises for executives whose retirement-age vesting triggers a huge taxable event.
457(f) vs 457(b) Difference
457(b) plans have $23,500 (2026) annual contribution cap and tax-deferred until distribution. 457(f) has no cap but is taxed when substantial risk of forfeiture lapses. For non-profit executives, 457(f) is the path to unlimited deferral — but vesting events trigger huge tax bills. Distribution timing doesn't help: tax is owed at vest regardless of when cash is received.
Substantial Risk of Forfeiture
Plan must include real condition that could cause forfeiture: continued service through specific date, achieving performance goal, non-compete after termination. IRS scrutinizes carefully — non-compete must be genuinely enforceable. If risk lapses early (acceleration, mutual agreement), entire balance becomes taxable immediately. Cliff vesting at age 65 means whole balance hits ordinary income in one year.
Section 409A Compliance
409A governs all NQDC including 457(f). Common pitfalls: discretionary distribution timing, extending vesting date, allowing acceleration without proper structure, late payments. 409A violation: 20% penalty + interest at federal underpayment rate plus 1%, owed by employee. Always coordinate with ERISA counsel and tax advisor — drafting errors can wipe out entire account.
Source: IRC §457(f), §409A, Treas. Reg. §1.457-12, 2026 IRS guidance. Last updated: May 2026.