@bpjohnson51 wrote:
This is a categorically wrong answer. It is deferred income; at the time it was deferred, you didn't get the money and it completely bypassed your earnings statement. You didn't pay taxes on it. The money remained an asset of the employer. ("substantial risk of forfeiture") So it IS earned, presumably many years later, when you get distributions from the 457. It will be reported as taxable wages.
See page 9 here,
https://www.irs.gov/pub/irs-drop/n-00-38.pdf
As long as the employee is immediately vested in their deferred compensation plan, the deferred wages are subject to social security and medicare withholding at the time the wages were paid into the deferred compensation plan.
That means that withdrawals from a deferred compensation plan are not subject to social security and medicare tax at the time of withdrawal, which in turn means they don't count as "earned income" or "compensation" earned from working.
And that means that in the end, a distribution from a 457 plan does not count as compensation that would allow the taxpayer to make a new contribution to a Roth IRA. 457 assets can be rolled over to a Roth IRA, but a 457 distribution does not count as compensation to allow new Roth IRA contributions. And that was the original question.
