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
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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The blog articles on this website are provided for general educational and informational purposes only, and no content included is intended to be used as financial or legal advice. A professional financial advisor should be consulted prior to making any investment decisions. Each person's financial situation is unique, and your advisor would be able to provide you with the financial information and advice related to your financial situation.