[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]