457(b) Tips to Make the Most of Your Savings
1. Similar to tip #2 for 401(a) accounts, you’re pretty much stuck with the provider your district selects for your 457(b). Many are subpar compared to other investment providers on the open market, but unfortunately there’s little to nothing you can do if your district has chosen to maintain your plan with a less than stellar provider. Because they control all aspects of the plan, unless you can convince someone in-charge to change things, you’re stuck with the provider your district offers.
2. 457(b) plan contributions don’t count against the typical retirement plan contribution limits that 403(b)s are subject to. So, if you’re contributing enough to max out your 403(b) but want to save more, a 457(b) account gives you that opportunity. This effectively gives you the ability to save double the typical amount allowed on a tax-advantaged basis if you have both types of accounts, and that’s quite a perk not available to most retirement savers.
3. Another contribution perk of 457(b) accounts is that they also offer a special catch up provision not available to any other retirement account. This provision allows you to contribute up to double the amount of the 457(b) contribution limit in each of your final three years of service. So, if you’re utilizing a 403(b) account and 457(b) account and max them out during your last three years, you can effectively saving three-times the typical retirement plan contribution limit. Doing this can help you catch up if your savings are a little short as you near retirement or give you the ability to pad the savings you already have to build in some extra certainty.
4. 457(b) accounts are also different from other retirement accounts in regards to early withdrawals. Withdrawals are considered early if you make them prior to age 59 ½ and are assessed at 10% penalty by the IRS. However, 457(b) early withdrawals are not subject to this same provision as long as you have separated from service. This can be incredibly helpful if you’re looking to retire early prior to age 59 ½ or if you decide to leave your district and afterwards find you need to access the funds. Just remember, withdrawals are still subject to taxation at your ordinary income rate unless you made Roth contributions to your 457(b) account.
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Mychal Eagleson, CFP®, ChSNC®, AAMS® is the President of An Exceptional Life Financial, a firm that specializes in financial planning for teachers and families with special needs. He frequently writes and speaks on personal finance topics relating to these clients. Mychal also serves on the board of the Financial Planning Association of Greater Indiana as the Director of Public Relations & Social Media. To read more of his articles and learn about An Exceptional Life Financial please visit: www.anexceptionallifefinancial.com.