How Deferred Compensation Works in Ohio

In Ohio, state and local government employees may have access to the Ohio Deferred Compensation program, a voluntary supplemental retirement plan. This program operates alongside other retirement benefits, such as pensions . Participants can choose from various investment options and decide how much they want to contribute, up to certain limits set by the Internal Revenue Service.

A financial advisor can help you create a retirement plan for your specific needs and goals.

Ohio Deferred Compensation Program Overview

The Ohio Deferred Compensation program, often referred to as Ohio DC, is a 457(b) retirement plan that allows participants to set aside a portion of their salary for retirement on a tax-advantaged basis. This program can help employees build a more secure financial future by offering a range of investment options tailored to individual retirement goals.

As of 2022, the plan had over 260,000 individual accounts from over 2,000 state and local government employers .

Account and Investment Options

Participants in the Ohio Deferred Compensation program have the flexibility to choose between different types of contributions.

They can make pre-tax contributions, which reduce their taxable income in the year they are made, potentially lowering their current tax bill. Alternatively, if their employer permits, participants can opt for Roth contributions . These contributions are made with after-tax dollars, meaning they don't reduce taxable income in the year they're made, but qualified withdrawals in retirement are tax-free.

Ohio DC offers a variety of investment options, including mutual funds and target date funds, allowing participants to tailor their investment strategy to their individual risk tolerance and retirement timeline.

Who's Eligible for Deferred Compensation in Ohio?

The Ohio DC plan is available to a wide range of public employees. This includes state and local government workers, as well as employees of public universities and colleges. To participate, individuals must be employed by an eligible public employer in Ohio.

Is Participation Mandatory?

Participation is entirely voluntary. Employees have the option to enroll in the program at any time during their employment. This flexibility allows individuals to decide if and when they want to start contributing to their retirement savings through this plan.

Who Runs the Deferred Compensation Program in Ohio?

Ohio DC is managed by the Ohio Public Employees Deferred Compensation Board, which is responsible for overseeing the program’s operations and ensuring it meets the needs of its participants. The board is composed of 13 members who are either elected by participants or appointed by state officials. This governance structure is designed to provide a balanced representation of interests, making sure the program remains responsive to the needs of Ohio’s public employees.

Contribution Limits for Deferred Compensation in Ohio

In 2024, individuals participating in the Ohio Deferred Compensation plan can contribute a maximum of $23,000 . This limit applies to standard contributions made by employees under the age of 50.

For those who are 50 and above, the IRS allows for catch-up contributions , increasing the limit by an additional $7,500 and bringing it to $30,500. These limits are set by the IRS and are subject to change annually, reflecting adjustments for inflation.

Starting in 2025, participants in workplace plans like 457(b)s and 401(k)s will be able to save even more between the ages of 60 and 63. For these four years, participants can make catch-up contributions of up to $10,000 or 150% of the standard catch-up contribution limit per year, whichever is greater.

Special Catch-Up Provision

Ohio Deferred Compensation also offers a special catch-up provision for participants within three years of retirement age. This provision allows eligible participants to contribute up to twice the annual limit, potentially reaching $46,000 in 2024. This option is available to those who did not maximize their contributions in previous years, providing an opportunity to bolster retirement savings as they approach retirement age.

Ohio Deferred Compensation Fees

Ohio DC charges an annual administrative fee of 0.14% of each participant's total account balance, which is assessed quarterly. This fee covers Ohio DC’s administrative costs and helps keep the program running efficiently.

Participants with less than $5,000 in their account won't be charged the administrative fee, providing an extra incentive to start saving. Additionally, the plan caps fees at $55 per quarter, regardless of the participant’s total balance. Investment managers also charge a separate expense ratio, but this is already included in the investment's net asset value.

Making Withdrawals From Ohio's Deferred Compensation Plan

Withdrawals from Ohio deferred compensation plans are treated as regular income for tax purposes, but the timing is flexible. Unlike most retirement plans, 457(b) plans don't charge a 10% penalty for early withdrawals made before age 59 ½. Employees can start receiving their funds penalty-free once they leave their job or choose to delay withdrawals to better manage their taxable income in retirement. Still, distributions will be subject to standard income taxes when taken.

Bottom Line

The Ohio Deferred Compensation program offers a flexible and tax-advantaged way for state and local government employees to supplement their retirement savings. With options for both pre-tax and Roth contributions, participants can tailor their approach to suit their financial goals and tax preferences. The program’s diverse investment choices, including mutual and target date funds, allow employees to personalize their investment strategy and portfolio in alignment with their individual risk tolerance and retirement timeline.

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