457 plans may not be the best choice. In this episode, I'm going to address the question.
What are the pros and cons of a 457 plan?
So, my name's Doug Andrew and I've been a retirement planning specialist now for more
than 47 years and I've observed many Americans save for retirement and all types of qualified
and non-qualified plans usually into traditional accounts. Where you're putting in pre-tax
contributions or tax-deductible contributions like an IRA and that's usually based upon the premise
that you're going to be in a lower tax bracket when you retire. Well, that has not been true or
axiomatic now for more than 30 years. Most people who save very much find themselves not in a lower
tax bracket when they retire even if they have less income. I'll come back to that and explain why
and this is going to give you some insights into why maybe a 457 plan may not be the best choice.
But first of all go through what a 457 plan is some of the pros some of the cons and then I'm
going to share with you what I feel is far better than putting money into a 457 plan.
So a 457 plan sometimes it's called a 457 B to be more accurate is a section in the internal
revenue code just like section 401k or 403 b. These are sections in the internal revenue code
that allow people to be able to save for retirement in some type of a tax deferred
vehicle and so they have different rules or the amount of contribution you can make can vary.
So, most Americans if they work in the private sector for a company that offers a 401k plan
that means that you can set aside money uh pre-tax dollars and this is a defined contribution plan.
See, 401ks came about because a lot of companies no longer wanted to guarantee a pension or a defined
benefit for how many years of service you taught school or whatever and those are called defined
benefit plans where maybe a school teacher gets two percent for every year of service they taught
for 30 years. So 2 times 30 you get 60 of your last best paychecks as a defined benefit. So, defined
contribution means that the employee gets to define how much they want to contribute to a plan.
So, it's up to wherever you allocate that money in a 401k based upon your risk tolerance that will
determine the rate of return and how much you have. There's no guarantees on what your nest egg will
be. But most people who use a traditional 401k you're putting in pre-tax contributions like an
IRA whatever you contribute is tax-deductible and then when you go to retire and you start
accessing the money you have to start paying tax on it and most people thought they were
going to meet a lower bracket. Well, Roths came about in 1997 when people began to realize hmm
I'm not going to be in a lower tax bracket because I've saved so much money and so they
wanted to pay tax on the contribution and enjoy the distribution tax-free and that's a Roth. Now,
let's go back to 401ks that's the most common. Well, what's a 457 or a 403 b? These are similar type
plans that are offered to certain employees like police officers, firefighters, maybe school teachers.
Oft times, the agency who employs these people they are government employees. Whether it's state or local
or federal government and so a 403 b allows people to contribute up to a certain amount every year
but you can't touch the money before age 59 and a half without incurring a 10% penalty on top of
the tax. So, what about a 457? If you have a 457 plan offered by your employer. You can contribute
to that 457 on top of the 403 b if you happen to have a 403 b available at your employer. So, a lot
of people like to use a 457 plan for that reason. The advantages are with the 457 it's not really
deemed technically a qualified plan and so it's not governed by the rules of ERISA. Meaning,
that you can access your money if you leave the employee of being a firefighter or police officer
you can access your money without a 10% penalty before the age of 59 and a half that's a huge
advantage. Because many times public servants and first responders maybe only work for 20 years and
they want to access that money in their 40s or 50s they can do that without a 10% penalty. Also
if you have a 457 plan it's deferred compensation so you're telling your employer don't pay me now
pay me later. But it's actually still their money. Now, that's an advantage if you got sued because
the 457 plan money is not subject to the claims of the creditors if you're going through a bankruptcy.
But if the agency the government agency gets into trouble their creditors could have claim
on your money in that 457 plan but it's highly unlikely a government agency would actually go
out of business. So, what is the real advantage of a 457 plan? Well, you can contribute up to the
maximum amount allowed in a given tax year as of the recording of this episode in the year 2021.
19,500 a year if you're over age 50 you can do a catch up you can add another
6,500 to that. The last three years before you retire you can actually put in double and so
if you could put in 19,500 you double that and that would be 39,000 that you could contribute
each year the last three years before you retire. Now, some people think, "Oh, this is incredible", and
I can have a 457 plan on top of a 403 b. Well, yeah those are some of the pros but what are the cons.
You will have to pay tax on that when you access that money and most people are not in lower tax
brackets when they retire if they save very much of a respectable retirement nest egg. I've seen
this over and over and over again. So, I'm going to ask you a few questions on if those are the
advantages that you see in a 457 plan that you can contribute. You can access money before age 59
and a half if you leave the employer without a 10% penalty and it's actually a deferred comp plan.
Well, you can do that without having to jump through the hoops of a government-regulated
type of a plan. So, the 457 has pros that has cons but I'm going to share with you what I think is
far better. Now, if this is intriguing you be sure and share this video with somebody who you know
maybe a firefighter or police officer or a school teacher a university that offers a 457 plan. This
is usually for non-profits or the academic hospitals where they train medical students
and so forth. You may want to share this video with them to give them insights. But subscribe
to the channel click on the bell because I post an in-depth answer to a financial question almost
on a daily basis on this channel. But stay with me to the end I want to gift you a copy of my
most recent best-selling book that will help you understand what I'm about to share with you.
Now, what is really better in my opinion than a 457 plan? Here we go.
What if I told you, hey, the government just changed the rules on 457 plans or 403 b's or 401ks and
you can actually contribute however much you want. It's not based upon your income
or a certain dollar amount each year like as the recording of this video 19,500 is the maximum you
can put in. Oh, you could put in 30,000. You could put in 50,000. If you have a banner
year you could put in a 100,000, okay. They just changed the rules on this let's say
and if you need to access money you don't have to wait till you quit being a firefighter or
police officer or school teacher. You could access the money anytime you want in your 30s 40s you
don't have to wait until you're 59 and a half and when you access the money it's totally tax-free.
The trade-off is you have to pay tax on the contributions that you put in. So this is like a
Roth and it's going to be tax-free on the back end. Oh by the way, this particular plan means
that if you happen to die in an accident or by natural causes anything in that plan will blossom.
It will increase in value and transfer totally tax-free to your heirs, to your spouse, your kids,
your grandkids, a charity whoever you want. People to go what I've never heard of a plan like that.
Well, it's because it's a non-qualified plan which technically a 457 is deemed a non-qualified plan.
That's why you can access the money when you leave the employee before age 59 and a half.
What is this? It's what I call the laser fund. The laser fund allows you to be able to put in
as much money as you want when you design it to accommodate 10,000, 50,000, a 100,000
a year. You don't have to put in a hundred you could put in 30. You can do ketchup if you
only put in 30,000 and you could have put in a 100,000. Anywhere down the road
you can make up the other 70,000, okay. If you don't use the room you don't lose it. So,
what's the difference? This is totally tax-free when you access the money. You can access it and
you can keep teaching school or being a police officer. You don't have to leave the employer in
order to be able to access the money and when you ultimately diet blossoms and transfers tax free.
What is it it's a max funded indexed insurance contract where I have earned personally and
thousands of people that have listened and watched and that I pointed my students to the advisors.
They've achieved rates of return averaging between seven to ten percent. Many of them
this year I'm recording this in the year 2021 have locked in gains of 30% and even 61.33%
tax-free. This is probably the least understood and the greatest vehicle that'll knock the socks
off of a 457 plan has all the benefits and a whole bunch more. Let alone 403 b's and 401ks. You need
to learn more about this laser fund. If this is intriguing you, I want to give you a copy of my
most recent best-selling book the laser fund. Now, if you go to laserfund.com... click on
the link below. I'll tell you what you contribute a nominal amount toward the shipping and handling
I'll cover the rest of that cost and I will pay for the book and fire it out to you. You
don't need to pay 20 on Amazon for this book. It's a 300-page book but it's actually two books in one.
This side here with the orange cover is actually for the right brain thinker or decision-maker.
This is about 100 pages 12 chapters with 62 chicken soup for the financial soul stories
of how the laser fund is like a dream solution for all kinds of goals but why it's most popular for
retirement planning. When you flip the book over to this side the white side it is comprised of 200
pages 14 chapters with all the charts graphs and explanations. When you study this you'll understand
why it is better than a 401 k 403 b 457 and why it's better to pay tax on the contributions
and enjoy the distributions totally tax-free. It's not a Roth, Roth only have two benefits.
This has those two benefits and four additional benefits that Roths will never have. So, click on
the link below get your copy of the laser fund and learn what's better than a 457 plan in my opinion.