What You Need to Know About 457(b) Plans and Retirement
457(b) plans are a great investment vehicle for retirement for those who work for colleges, universities, unions, certain governmental organizations, non-profits, etc., and they have some interesting features that can make them very advantageous.
Benefits Of a 457(b) Plan
- You can contribute $18,000 for 2015; if you’re over age 50, you can contribute $24,000, and if you qualify for pre-retirement catch-up contributions you can contribute up to $36,000
- Contributions to the traditional 457(b) plan are done on a pre-tax basis through salary reductions, and are tax deductible 457(b) plans are considered non-qualified retirement plans)
- If your employer offers a Roth 457(b) option (NOT required on their part), there are no income restrictions to making contributions as there are in a Roth IRA, plus your 457(b) contribution limit of $18,000/yr. is much higher than the current Roth IRA contribution limit (only $6,000/yr.) so you can save more. One drawback: the Roth deferrals are NOT tax deductible, but your withdrawals in retirement are TAX-FREE
- Your savings grow tax-free, and you only pay taxes after taking distributions from a traditional 457(b) in retirement (NO 10% penalty for withdrawals taken before age 59-1/2; this only applies if you no longer work for your employer); your Roth 457(b) withdrawals in retirement are distributed TAX-FREE also.
Disadvantages Of 457(b) Plans
- Sometimes there is a lack of quality 457(b) choices for you to invest in (either too expensive, not enough investment options, etc.)
- You lose the benefit of no 10% penalty on early withdrawals if you roll your pre-tax 457(b) plan into a traditional IRA
Conclusion
Find an experienced 457(b) financial advisor who works for an RIA firm, earns his/her money from fees (NOT commissions), believes in having an abundance of investment choices for clients, and has the heart & demeanor of a teacher, NOT a salesman, and chances are you’ve found the right 457(b) financial advisor to help you and/or your employees prepare and plan for retirement.
To learn more about Martin Federici, view his Paladin Registry profile.
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