[Code of Federal Regulations]
[Title 26, Volume 6]
[Revised as of April 1, 2002]
From the U.S. Government Printing Office via GPO Access
[CITE: 26CFR1.457-4]

[Page 159-160]
 
                       TITLE 26--INTERNAL REVENUE
 
    CHAPTER I--INTERNAL REVENUE SERVICE, DEPARTMENT OF THE TREASURY 
                               (CONTINUED)
 
DEFERRED COMPENSATION, ETC.--Table of Contents
 
Sec. 1.457-4  Transitional rules.

    (a) In general. Subject to the limitations described in paragraphs 
(b) and (c) of this section, amounts deferred (within the meaning of 
Sec. 1.457-1(d)(3)) in taxable years beginning after December 31, 1978, 
and before January 1, 1982 under a plan described in Sec. 1.457-2(b) 
(including an eligible plan within the meaning of Sec. 1.457-2, but not 
including a plan described in section 457(e)(2) and Sec. 1.457-3(b)) 
shall be includible in gross income only for the taxable year in which 
paid or otherwise made available to the participant or other 
beneficiary.
    (b) General limitation. Except as described in paragraph (c) of this 
section, and excluding amounts deferred in taxable years beginning 
before January 1,

[[Page 160]]

1979, compensation deferred under one or more plans described in 
paragraph (a) of this section is excludable from a participant's gross 
income under this section for a taxable year only to the extent it does 
not exceed the lesser of--
    (1) $7,500, or
    (2) 33\1/3\% of the participant's includible compensation (within 
the meaning of Sec. 1.457-2(e)(2)) for the taxable year, reduced by any 
amount excludable from the participant's gross income for the taxable 
year under section 403(b) on account of contributions made by the State 
(within the meaning of Sec. 1.457-2(c)). For purposes of this paragraph, 
compensation deferred under a plan shall be taken into account at its 
value in the plan year in which deferred. However, if the compensation 
deferred is subject to a substantial risk of forfeiture (as defined in 
section 457(e)(3)), such compensation shall be taken into account at its 
value in the plan year in which such compensation is no longer subject 
to a substantial risk of forfeiture.
    (c) Limited catch-up. This paragraph (c) applies if all plans 
described in paragraph (a) of this section in which an individual is a 
participant are eligible plans within the meaning of Sec. 1.457-2, and 
the participant's taxable year is a taxable year described in section 
457(b)(3) and Sec. 1.457-2(f). In such a case, compensation deferred 
under the plans for the taxable year is excluded from gross income under 
paragraph (a) of this section to the extent it does not exceed the 
amount determined under Sec. 1.457-1(a)(2) or, as applicable, 
Sec. 1.457-1(a)(3).
    (d) Example. The provisions of this section may be illustrated by 
the following example:

    Example. A is a participant in a State deferred compensation plan 
that is not an eligible plan within the meaning of Sec. 1.457-2. The 
plan provides no limitations on the amount of compensation that may be 
deferred during any taxable year. For the taxable years 1979, 1980, and 
1981 A has includible compensation of $40,000. In each of those years, A 
has deferred $10,000 of compensation. Under the transitional rules 
described in this section, $7,500 of A's deferrals in each year will be 
includible in gross income in the taxable year in which paid or made 
available to A or A's beneficiary. The remaining $2,500 of each year's 
deferrals ($10,000 - $7,500) are includible in A's gross income for the 
deferral year. Thus, $2,500 is includible in A's gross income for each 
of the taxable years 1979, 1980, and 1981. The tax treatment of amounts 
deferred by A in taxable years after 1981 is described in Sec. 1.457-3.

[T.D. 7836, 47 FR 42341, Sept. 27, 1982]