Do 457 Retirement Plans Work? ==>[THE TRUTH WILL SHOCK YOU]

Do 457 Retirement Plans Work? ==>[THE TRUTH WILL SHOCK YOU]

DO 457 RETIREMENT PLANS WORK OR NOT?

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INTRODUCTION

Welcome to my article which will touch base on whether or not 457 Retirement Plans actually work.

Before we continue, I need you to understand that you are very fortunate to be counted among State and Local Government employees, so long as saving for your retirement is concerned. This is because you stand a greater chance of planning a successful retirement, compared to those who work in the private sector. You are most probably here because you have started checking out various retirement options to sufficiently prepare for the inevitable retirement era, and you want to give the 457 Retirement Plans a shot. Do 457 Retirement Plans Work? Read on to discover some interesting truths that might actually shock you about the 457  Retirement Plans.

 

WHAT IS A 457 RETIREMENT PLAN?

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The 457 Retirement Plan which is available in the United States has some fundamental characteristics:

  • It is non-qualified, meaning it does not adhere to the Employee Retirement Income Security Act (ERISA) guidelines. More about the characteristics of a non-qualified plan will be subject to a different article. I intend to keep this post as relevant as possible without going too far off-topic;
  • It is tax-advantaged to the extent that the savings you make towards this account will be tax exempted and only charged at the time you decide to withdraw your funds;
  • It is a deferred compensation plan meaning that it is set aside to be paid subsequently in the future.
  • It’s a retirement plan that is offered only by the State, Local government and some non-profit employers in the United States.

With the 457 Retirement Plan, there are usually two types of contributions you can make:

  • 457 (b) for State and local government employees;
  • 457 (f) for highly paid government employees and a few non-government employees.

Let’s start getting into the core of our topic by taking a look at the characteristics of the 457 retirement plan below.

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CHARACTERISTICS OF 457 RETIREMENT PLANS

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  • They are reserved only to employees of the State, Local government and high paying executives of non-profit organizations;
  • These retirement accounts are constituted by setting aside a portion of your pre-tax salary to your respective savings account. Your funds compound in value, free of any taxes that these savings account might generate;
  • You can use the amounts in your savings accounts to invest in mutual funds. The earnings and interests generated will not be taxed until they are withdrawn;
  • You can save all of your salaries into this retirement account, provided that it does not exceed the stipulated annual limit. Participants of 457 (b) plan contributions, for instance, have a yearly limit of $19, 000 (as of 2019) which can only be exceeded in specific circumstances. Catch Up Contributions is a perfect example which allows workers above the age of 50 to be able to save an extra of $6,000, increasing the acceptable yearly savings limit to $25,000 (i.e $19,000 + $6,000);
  • The 457 (b) compensation plan equally provides for the ”Double Limit Catch-Up” making it possible for such employees to be able to save double the accepted limit i.e. $19,000 x 2 which is $38,000. This added advantage can only be enjoyed by employees nearing retiring, who have not yet made sufficient savings, even though they were eligible. Their yearly annual savings as participants of the 457 (b) can reach $38,000 on a yearly basis. We are looking at employees who are only about 3 years to their retirement as mentioned in their plan;
  • There’s a third possibility to exceed your yearly savings of $19,000 if you don’t fall in the emergency situations sited above. It is referred to as the Unused Contributions Rollover, which allows you to take advantage of the fact that you were not able to save up to $19,000 in the prior year, thereby giving you the possibility to save in excess of the amount which fell short of $19, 000 in the previous year. For instance, if in the previous year, you were able to save only $5,000, this means that you fell short of your annual savings by $14,000. So during the current year, you can save up to $19,000 + $14,000, which is a total of $33,000 you can save for that year as a 457 (b) participant;
  • Remember that your contributions would be exempt from all tax purposes, but once you start withdrawing, they would be taxed as income, in a similar way as the 401(k) or 403(b) contributions are taxed;
  • There is even greater news. You can withdraw your contributions well beforehand without being subject to early withdrawal penalties. But since once you withdraw, you become subject to income tax, it is recommended you spread out withdrawal over a reasonable number of years to avoid huge taxes;
  • Also, even though 457 plans are generally protected against creditors’ claims, this is not always the case. Be sure to acquaint yourself with what limits and extents your retirement savings are protected, irrespective of the type. I will be writing an article on this subsequently.

Are you on the clock when it comes to adequately save for retirement?

[PLEASE FEEL FREE TO SHARE  IN THE COMMENTS SECTION HERE, SOME OF THE REASONS WHY YOU CANNOT SAVE]

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ADVANTAGES OF THE 457 RETIREMENT PLANS

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The 457 retirement plans have some advantages which cannot be understated. Some of the most striking ones include the following:

Withdrawals Are Not Subject To Penalties

This is by far one of the best advantages of the 457 retirement plan.

For any reason whatsoever, that might prompt you to want to withdraw your funds beforehand, you will not bear the 10% penalty tax as is currently the case with the 401 (k) and 403 (b) plans.

I’m referring to decisions such as early retirement, emergency issues, changing jobs, and even resigning. Whenever you have the need for some urgent cash, it is absolutely safe to withdraw.

You should, however, restrain from taking a huge lump sum at any one time, as this would be subject to huge income taxes.

You Pay Fewer Income Taxes When You Save More

Your contributions to your 457 savings account are made directly from your pretax income, thereby reducing the total taxable amount. The end result is fewer taxes paid at the end of each year.

What actually happens is this. If you earn a total of $10,000 at the end of each month, and you decide to save say $3,000 to your account, your income taxes would be applied on $7.000 instead of $10,000.

No wonder some limits have been fixed with regards to the amounts you can save per year using this retirement plan. If there were actually no limits, I’m pretty sure this would have encouraged many more people to save more.

You Can Use Your Savings To Invest In Mutual Funds And Earn Interests

When you realize that your savings accounts are picking up on size, you can start investing to earn interests which are tax-free, until you decide to withdraw them.

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DISADVANTAGES OF THE 457 RETIREMENT PLANS

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Available Only To States Employees

These retirement savings conditions appear to be relatively very favorable, but unfortunately, they can only be enjoyed by government employees, who represent quite an insignificant number as compared to those working in the private sector.

In addition, due to the recent challenges that employees of the government sector encountered, with the main one being the major government shutdown that occurred recently, many people are beginning to question the stability that used to be associated with government jobs.

It’s very unlikely that becoming a State employee will continue to be cherished by American citizens. Leading to a possible further decline of State workers. Who then is going to benefit from these favorable retirement savings conditions in the long run?

The Double Limit Catch Up Benefit Is Close To Impossible To Implement

It’s very unlikely that many people will take advantage of this particular associated with the 457 (b) retirement saving option.

Come to think of it.

If someone has spent his/her entire career not being able to save for retirement, how easy will it be for that person to be able to raise $38,000 every year, for 3 years prior to his/her retirement?

This is a very nice incentive, but many people might not be happy to take advantage of it.

Irrespective of whether you are a government worker or not, creating an extra source of income which will not interfere with your full-time employee status is what everyone is looking forward to today.

But the main problem is that many people simply do not know where to start searching for such legitimate opportunities online.

Well, look no further:

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DO 457 RETIREMENT PLANS WORK? CHECK OUT SOME SHOCKING TRUTHS

Do 457 Retirement Plans Work? ==>[THE TRUTH WILL SHOCK YOU]
Do 457 Retirement Plans Work? ==>[THE TRUTH WILL SHOCK YOU]
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This section will not give you a YES or NO answer with regards to whether the 457 retirement plan works or not. But here are some shocking truths I’ve taken into account to back up my point of view:

  • Government workers generally earn higher than private-sector workers.  This means that savings shouldn’t represent a major concern for this category of workers as opposed to private-sector workers who barely manage to make it by the end of the month. So does the 457 plan work? Yes, it will if you discipline yourself and start saving tirelessly towards your retirement. I don’t recommend the savings approach to those who earn on average about $46,000/year. This is what I recommend for them instead. Once they are able to generate a more sustainable source of income using my recommended approach, then they can start saving excess profits to their various retirement plans;
  • 457 Retirement plans will even work better than the options available to the private sector workers, for one major reason: flexibility. I’ve already talked about the no penalty clause when it comes to withdrawing before time. The very fact that you can still access your funds before retirement is really a strategic advantage because it definitely takes into account the bitter realities of life: we fall sick from time, we change jobs, we resign before retirement, etc, etc, etc…  So as a government employee, I will strongly recommend that you save aggressively towards your 457 retirement plans since you earn way higher than the others. Or if you think you are not earning enough yet, my top recommendation would also be to take advantage of this excellent source of income while you are still working full-time;

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ADDITIONAL FACTS ABOUT 9-5 JOBS YOU MIGHT BE INTERESTED IN

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If you are interested in other related topics concerning 9-5 jobs, then check out my recently published articles below:

CONCLUSION ABOUT WHETHER 457 RETIREMENT PLANS WORK

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The 457 Retirement plans are one the best retirement savings options I’ve come across so far. Unfortunately it’s available only to government workers.

That notwithstanding, every plan has its advantages and disadvantages, and if you are part of the government workforce, then I encourage you to start taking advantage of this opportunity that is not available to many people out there.

If you are not a government employee, or are one but lagging far behind your retirement plans, then click below to discover a solution that will help you diversify your resources significantly in the long run without affecting your 9-5 job in any way:


I hope you found my article informative. Don’t hesitate to leave a comment below if you need more clarifications with regards to the question: ”Do 457 Retirement Plans Work?”

✌✌Thanks for reading.✌✌


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StunningBell

''Stunning Bell'' is a Digital Entrepreneur with 10 years of experience in the financial sector. She's now earning full-time online thanks to a world-class training platform she accidentally stumbled upon. Connect with her personally at Wealthy Affiliate, where, as an Affiliate Marketer of this university,she was able to make her first dollar online, which eventually transformed into a full-time income.??

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