I'm in year 2 of the 3-year special 457b catch up. I'm retiring at the end of 2025. If you have an employer that offers both a 457b and a 401k/403b, then contribute to both if possible - it supercharges your retirement nest egg. The 457b can also be used as a bridge to SS if you decide to retire early.
@@royaldee400 Many people do 50/50 to start and adjust later, but I would say put in a higher % to the account you plan on accessing last. The lower % would be in the account you access first. When you deplete the smaller account in retirement, you move move to the bigger account which had the extra time to grow even more. In my case, I'm drawing on the smaller 401k first and will deplete it by the time the 457b RMDs start. If I could do it all over, I would have used the ROTH 401k option instead of the regular one. I was trying to maximize my pre-tax shelter because I had a side business and had to file a schedule C. I wanted to lower the tax hit. I'm still doing well and can't complain.
My 457b plan is allowing me to retire 5 years earlier than I would have without it. I have been saving into both a 457b and a 403b plan for 25 years now and I plan on retirement in 2025 at age 62. It has been a tremendous savings vehicle for my retirement. I recommend it to anyone who can max out their 403b/401k with employer match first, but also have additional income to invest after that.
Thanks for the video. One thing to note is that non-governmental 457b are limited in rollover potential. Only rollover potential is to another non-governmental 457b which seem pretty uncommon. I plan to retire early but don't know exactly when so if I switch companies I can be in for some pretty difficult decisions. Also it sucks if my company ever goes bankrupt, the money in its entirety could be lost.
I had contributed to mine back when i first started my job but i didnt like 1) its growth 2) the choices of stocks available 3) the lack of ability to transfer it. essentially, the stocks were just different iterations of the company itself. something to the tune of ABCX, ABCD, ABCY, ABCZ. this was between 2015 and 2018. So before I knew of Dave Ramsey or other financial tips/advice. I just knew it would at least be a guaranteed return to pay off my debts first, since my observations had shown a 85 ish percent on my dollar. it wasnt fully lost money but it did LOSE VALE for every dollar in my roth 457b. sadly I couldnt just withdraw to pay off a debt quicker, transfer to a more profitable Account Manager, and again what truly seemed dubious to me: the investments were into the company itself rather than outward to other companies. again this was 2015-2018, so these werent the obviously bad years that the virus did to the 2020 economy. Long story short, i would love to know how to access those funds to use for a better usage.
This is why I will be taking all of the money I have saved out of my 457b first during retirement. I do not want to risk losing it if my employer becomes financially insolvent.
@@JeffreySmith-if6ey I was a liquidation agent for the fed gov during the Great Recession. Seized many 'a 457(f) and even 457(b)'s. Knocking out the $10M and $20M f's made me smile; albeit I always felt guilty seizing the b's since the given C-Suiter had put their own $ in. But, yes. "An attempt to payout a non-qualified pension plan proximate to a downturn in financial performance can be construed as an attempt to de-fraud a subsequent creditor". That being the fed gov when you are seized...
I’m a 28 year old train operator in Chicago and just enrolled in a 401k account, But feel like 457 might have been the smarter move? Looking for a little more insight on what might be more beneficial for me going forward. Thank you!
If you can max out both that would be great. I always used the 457B first just in case I wanted to retire prior to age 59.5 as I didn’t use the Roth feature on the 401k. I was using the traditional 401k as we were trying to max both and near retiring. If you’re young the ROTH is a blessing for most folks.
Nice Job. You were very clear. I like that you mentioned pairing this with a traditional pension plan. That makes a 457b into a mega sized IRA, with special rules. Question: Do the contributions have to be by payroll deduction? or can a person wait until December and decide to contribute the 22k or so to the plan?
Glad you found this helpful! Contributions must be done via payroll deduction. You could potentially wait until end of year to do a larger contribution, but the maximum size of that contribution would effectively be capped at the size of your pay during that pay period. I hope that makes sense 🙏
49 yr old city employee here (roughly $110k per year). I am currently contributing 8% to Deferred Compensation 457 Plan & 7% to Deferred Compensation 401(k) Plan. Does this sound about right?
Great information! I’m currently contributing to a 457b plan and a backdoor Roth IRA with Vanguard. Can I also open an individual 401K account with Vanguard and contribute pre-tax? I already maxed out my 457b for the year, and I would like to max out the 401k to take advantage of the tax benefit.
Great question. While I can't give direct financial advice (as to whether you SHOULD do this or not), here is the info you can use to consider this. 1) You can only open a 401k if you are self employed (as an Individual 401k) OR if you work for an employer that offers a 401k (say a second job, or maybe your primary employer has a 401k option as well). 2) If you did have access to a 401k, then you would be able to contribute to that in addition to your 457, although the amount of which would be unique and specific to you based on your income. 3) In your scenario I would recommend speaking to a Certified Financial Planner or a tax professional to determine how to navigate the scenario you present (if it is even possible) so as not to make mistakes. Hope you find this helpful!
Yes, this was extremely helpful. Thank you for taking the time to respond as fast as you did. I appreciate it! I’m going to take your advice and look for a financial planner. I hope you have a nice weekend.
Exactly what i needed. I have a pre tax 457b & the state allows me to roll my plan into a roth. I will be 59.5 when i retire with a pension & it sounds like i can avoid being taxed in a roth at 59.5 🎉
Hey there, I just started a job in a school district in California. Calpers offers both 403b and 457, if I could only choose 1 for now, which should I go for?
Hello.. love the video. New sub! Got a question. I have a 457b pre-tax since 2017. Been contributing 50 biweekly til 2020 then went fr 50 to 100 bi-weekly 2020-2023. Now i have change it to 200 bi-weekly. Just got a good raise last yr. Was making 50k to 61k a yr gross. I keep reading everywhere i must invest 15% of my income and you mention about roth 457b. So if i decided to invest 15% of my income. Can i do 7.5 both 457b pretax and roth? Is this wise thing to do? Im 37 this year and have 19k on my 457pretax. Ty
I suppose it depends which municipality you work for 😜. In this case the only thing to pay attn to when deciding between flat dollar contribution or % based contribution is to track how many dollars you actually contribute if u use %. Ex: if you contribute 10% of salary with $61k salary, the contribution is actually $6100 per year or $254 per pay period. Does that make sense
Cool vid, I have a 457 and have gained recent interest in converting current 457 funds into ETFs or future contributions into ETFs. Is this possible? How would it work with taxes?
Most 457 funds function very similar to ETFs. But unfortunately as long as you stay with your employer you cannot move the funds out of the 457 into ETFs. The only way to do that would be to perform a "rollover" and move the funds from your 457 into an individual retirement account and then invest in ETFs within the individual retirement account
@ThePeakFP thanks, I recently found out the 457 manager allows for a self managed option through Charles Schwab. Opened up the account and waiting to be able to transfer funds.
@@jayinla228 Well that is certainly a nice perk. So disclaimer, this isn't financial advice, and I don't know your particular situation, but finds in a 457 are tax deferred and as long as those funds stay within the self directed 457 there are no tax consequences to trading between different funds.
So can I contribute to a Roth IRA outside of my organization, AND also contribute to my 457 Roth? (My company offers either roth or pretax) and if so, is that 457 contribution limit still 23k or is that limit similar to that of an ira… like 6k
Yes you would be able to contribute to BOTH. You can reference the IRS documentation for the full combined amount as it changes year by year. You can generally contribute the MAX to each the 457 and IRA as one of the unique features of the 457 is that the contribution limit does not overlap with the IRA. So for example you could potentially contribute $23k to the 457 and an additional $7k to the ROTH IRA if you were over age 50. Just pay attention to the income cap that is placed on roth contributions to IRA - if you make over a certain amount of money your ability to contribute to a ROTH IRA is phased out and eventually eliminated. You can read more on the IRS documentation here: www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts#:~:text=Yes%2C%20the%20combined%20amount%20contributed,IRC%20Section%20402(g)).
i really enjoyed this video i am interviewing for a position soon and the agency offers a 457b plan and 401a pension plan. are u familiar with 401a plans that offer pensions. i was curious about if i would be paid a guaranteed amount monthly once i retired
Hi there - I actually have a video and written article on the 401a plan: Video: th-cam.com/video/d8m7vpZ4hpc/w-d-xo.html&ab_channel=PeakFinancialPlanning Article: www.thepeakfp.com/blog/401a-vs-401k 401A plans will not generally pay a guaranteed amount in retirement. It is not actually a "Defined Benefit" pension plan. You may also have a separate pension plan from your employer as some employers that offer 457b also offer pensions paired with the 457 - but you'd need to check on that.
So if I understood correctly, I can withdraw my 457 pre dollars before 59 1/2 and pay income taxes. I cannot withdraw my Roth 457 before 59 1/2 penalty free right? I am looking to retire at 55.
If you are still employed you cannot withdraw your pretax money without paying both income taxes and penalties. The same is true for the Roth portion. Once you are no longer employed and at least age 55 you can withdraw the tax deferred portion without paying penalties - you will still owe income taxes and there are some rules to follow here. I recommend you reach out to a financial advisor or tax professional before taking action.
Sir, I am 57 years old, I have an autistic son with high spectrum and I do not qualify for supplemental SS because I work too much and I worry very much about his future. However, can I roll my 457 funds into a Roth IRA account when I retire in 8 years from now at 65 years old? And if I can do I still have to pay 20% federal taxes? Thanks!
Hello sir - I understand your concerns :\. It's a difficult spot to be in... Unfortunately I can't say for certain what your limitations would be RE: the 457. However, when rolling from a 457 into an IRA - if the contributions WITHIN the 457 are traditional (pre-tax) then - no you would not be able to roll those into a ROTH IRA tax free. You could however roll them into a traditional (Pre-tax) IRA and defer the tax. If you want to roll from a 457 into a ROTH IRA the original contributions within the 457 would have to be ROTH (AFTER TAX). Hopefully this helps!
It can be - yes. I don't know your particular financial situation, but depending on your age, income, and expenses, I'd say in 85% of circumstances you should consider saving into your 457b in at least some amount.
If you are high income especially it can reduce your taxable income significantly which is a huge benefit. I'm maxing out both a 401k with match and 457b with no match this year.
So if I contribute more to my 457(b) to lower our AGI below $230K (married filing jointly), would we be ale to contribute the maximum to a Roth IRA? Also, If I contribute the Roth 457(b) and my wife also contribute a Roth through her employer, does that count towards the maximum I can contribute to a Roth IRA outside from our employers?
You should consult with your own tax or financial advisor for a direct answer to this - but generally speaking you because a 457b is a NON QUALIFIED plan, you can also contribute to other qualified retirement options such as an IRA or another employer 401k (if available). Maximum available contributions do not overlap between 457b and IRA accounts. Hope this is helpful!
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I'm in year 2 of the 3-year special 457b catch up. I'm retiring at the end of 2025. If you have an employer that offers both a 457b and a 401k/403b, then contribute to both if possible - it supercharges your retirement nest egg. The 457b can also be used as a bridge to SS if you decide to retire early.
How much percentage in each?
@@royaldee400 Many people do 50/50 to start and adjust later, but I would say put in a higher % to the account you plan on accessing last. The lower % would be in the account you access first. When you deplete the smaller account in retirement, you move move to the bigger account which had the extra time to grow even more. In my case, I'm drawing on the smaller 401k first and will deplete it by the time the 457b RMDs start. If I could do it all over, I would have used the ROTH 401k option instead of the regular one. I was trying to maximize my pre-tax shelter because I had a side business and had to file a schedule C. I wanted to lower the tax hit. I'm still doing well and can't complain.
@@vernshird711thank you for this comment.
Bro you are severely underrated on this platform. You are clearer than most and teach well.
I appreciate that! Everybody has to start somewhere and put in there time...
My 457b plan is allowing me to retire 5 years earlier than I would have without it. I have been saving into both a 457b and a 403b plan for 25 years now and I plan on retirement in 2025 at age 62. It has been a tremendous savings vehicle for my retirement. I recommend it to anyone who can max out their 403b/401k with employer match first, but also have additional income to invest after that.
This video was so clear, concise, and helpful. For real. Thank you.
My pleasure! I hope it helped!
Thanks for the video. One thing to note is that non-governmental 457b are limited in rollover potential. Only rollover potential is to another non-governmental 457b which seem pretty uncommon. I plan to retire early but don't know exactly when so if I switch companies I can be in for some pretty difficult decisions. Also it sucks if my company ever goes bankrupt, the money in its entirety could be lost.
Good feedback and also good reminder to be mindful of the stability of your employer when factoring how much savings you contribute to your 457 plan
I had contributed to mine back when i first started my job but i didnt like
1) its growth
2) the choices of stocks available
3) the lack of ability to transfer it.
essentially, the stocks were just different iterations of the company itself. something to the tune of ABCX, ABCD, ABCY, ABCZ. this was between 2015 and 2018. So before I knew of Dave Ramsey or other financial tips/advice. I just knew it would at least be a guaranteed return to pay off my debts first, since my observations had shown a 85 ish percent on my dollar. it wasnt fully lost money but it did LOSE VALE for every dollar in my roth 457b.
sadly I couldnt just withdraw to pay off a debt quicker, transfer to a more profitable Account Manager, and again what truly seemed dubious to me: the investments were into the company itself rather than outward to other companies.
again this was 2015-2018, so these werent the obviously bad years that the virus did to the 2020 economy.
Long story short, i would love to know how to access those funds to use for a better usage.
This is why I will be taking all of the money I have saved out of my 457b first during retirement. I do not want to risk losing it if my employer becomes financially insolvent.
@@JeffreySmith-if6ey I was a liquidation agent for the fed gov during the Great Recession. Seized many 'a 457(f) and even 457(b)'s. Knocking out the $10M and $20M f's made me smile; albeit I always felt guilty seizing the b's since the given C-Suiter had put their own $ in. But, yes. "An attempt to payout a non-qualified pension plan proximate to a downturn in financial performance can be construed as an attempt to de-fraud a subsequent creditor". That being the fed gov when you are seized...
I contacted my HR today because of this video and found out I have a Roth 457 option so now I’m going to do both! Thank you!
Wonderful!
Thank you! Im in the education field with a 457b! Very informative and helpful
Glad it was helpful!
I’m a 28 year old train operator in Chicago and just enrolled in a 401k account, But feel like 457 might have been the smarter move? Looking for a little more insight on what might be more beneficial for me going forward. Thank you!
If you can max out both that would be great. I always used the 457B first just in case I wanted to retire prior to age 59.5 as I didn’t use the Roth feature on the 401k. I was using the traditional 401k as we were trying to max both and near retiring. If you’re young the ROTH is a blessing for most folks.
thanks for the great video that explains everything
Glad it was helpful!
Could you link the video that talks about roth or tax deferred contributing?
Nice Job. You were very clear. I like that you mentioned pairing this with a traditional pension plan. That makes a 457b into a mega sized IRA, with special rules.
Question: Do the contributions have to be by payroll deduction? or can a person wait until December and decide to contribute the 22k or so to the plan?
Glad you found this helpful!
Contributions must be done via payroll deduction. You could potentially wait until end of year to do a larger contribution, but the maximum size of that contribution would effectively be capped at the size of your pay during that pay period.
I hope that makes sense 🙏
@@ThePeakFP👍 Correct
49 yr old city employee here (roughly $110k per year). I am currently contributing 8% to Deferred Compensation 457 Plan & 7% to Deferred Compensation 401(k) Plan. Does this sound about right?
Great information! I’m currently contributing to a 457b plan and a backdoor Roth IRA with Vanguard. Can I also open an individual 401K account with Vanguard and contribute pre-tax? I already maxed out my 457b for the year, and I would like to max out the 401k to take advantage of the tax benefit.
Great question. While I can't give direct financial advice (as to whether you SHOULD do this or not), here is the info you can use to consider this.
1) You can only open a 401k if you are self employed (as an Individual 401k) OR if you work for an employer that offers a 401k (say a second job, or maybe your primary employer has a 401k option as well).
2) If you did have access to a 401k, then you would be able to contribute to that in addition to your 457, although the amount of which would be unique and specific to you based on your income.
3) In your scenario I would recommend speaking to a Certified Financial Planner or a tax professional to determine how to navigate the scenario you present (if it is even possible) so as not to make mistakes.
Hope you find this helpful!
Yes, this was extremely helpful. Thank you for taking the time to respond as fast as you did. I appreciate it! I’m going to take your advice and look for a financial planner. I hope you have a nice weekend.
Exactly what i needed. I have a pre tax 457b & the state allows me to roll my plan into a roth. I will be 59.5 when i retire with a pension & it sounds like i can avoid being taxed in a roth at 59.5 🎉
Hey there, I just started a job in a school district in California. Calpers offers both 403b and 457, if I could only choose 1 for now, which should I go for?
For 457b Roth is the limitation same as traditional? In other words for 2023 can I contribute $22,500 into roth 457b?
Hello.. love the video. New sub!
Got a question. I have a 457b pre-tax since 2017. Been contributing 50 biweekly til 2020 then went fr 50 to 100 bi-weekly 2020-2023. Now i have change it to 200 bi-weekly. Just got a good raise last yr. Was making 50k to 61k a yr gross. I keep reading everywhere i must invest 15% of my income and you mention about roth 457b. So if i decided to invest 15% of my income. Can i do 7.5 both 457b pretax and roth? Is this wise thing to do? Im 37 this year and have 19k on my 457pretax. Ty
Glad you enjoyed the video!
Yes you could split the contributions between the two types.
@ThePeakFP thank you. Is there any advantage or disadvantage whether you contribute by $ amount or by percentage? Thank you.
Does your employer offer a matching contribution? If they do, do you know you to what %?
@ThePeakFP sadly, no.👎 I work at a local government. We got pension and idk if pension is safe when I retire. 😅
I suppose it depends which municipality you work for 😜.
In this case the only thing to pay attn to when deciding between flat dollar contribution or % based contribution is to track how many dollars you actually contribute if u use %. Ex: if you contribute 10% of salary with $61k salary, the contribution is actually $6100 per year or $254 per pay period. Does that make sense
Cool vid, I have a 457 and have gained recent interest in converting current 457 funds into ETFs or future contributions into ETFs. Is this possible? How would it work with taxes?
Most 457 funds function very similar to ETFs. But unfortunately as long as you stay with your employer you cannot move the funds out of the 457 into ETFs. The only way to do that would be to perform a "rollover" and move the funds from your 457 into an individual retirement account and then invest in ETFs within the individual retirement account
@ThePeakFP thanks, I recently found out the 457 manager allows for a self managed option through Charles Schwab. Opened up the account and waiting to be able to transfer funds.
@@jayinla228 Well that is certainly a nice perk. So disclaimer, this isn't financial advice, and I don't know your particular situation, but finds in a 457 are tax deferred and as long as those funds stay within the self directed 457 there are no tax consequences to trading between different funds.
@@ThePeakFP thanks it's actually a 457 ROTH
@@jayinla228 Same principle will apply. long as the funds stay in the account there is no tax consequence to the trades
So can I contribute to a Roth IRA outside of my organization, AND also contribute to my 457 Roth? (My company offers either roth or pretax) and if so, is that 457 contribution limit still 23k or is that limit similar to that of an ira… like 6k
Yes you would be able to contribute to BOTH. You can reference the IRS documentation for the full combined amount as it changes year by year. You can generally contribute the MAX to each the 457 and IRA as one of the unique features of the 457 is that the contribution limit does not overlap with the IRA. So for example you could potentially contribute $23k to the 457 and an additional $7k to the ROTH IRA if you were over age 50.
Just pay attention to the income cap that is placed on roth contributions to IRA - if you make over a certain amount of money your ability to contribute to a ROTH IRA is phased out and eventually eliminated. You can read more on the IRS documentation here:
www.irs.gov/retirement-plans/retirement-plans-faqs-on-designated-roth-accounts#:~:text=Yes%2C%20the%20combined%20amount%20contributed,IRC%20Section%20402(g)).
i really enjoyed this video i am interviewing for a position soon and the agency offers a 457b plan and 401a pension plan. are u familiar with 401a plans that offer pensions. i was curious about if i would be paid a guaranteed amount monthly once i retired
Hi there - I actually have a video and written article on the 401a plan:
Video: th-cam.com/video/d8m7vpZ4hpc/w-d-xo.html&ab_channel=PeakFinancialPlanning
Article: www.thepeakfp.com/blog/401a-vs-401k
401A plans will not generally pay a guaranteed amount in retirement. It is not actually a "Defined Benefit" pension plan.
You may also have a separate pension plan from your employer as some employers that offer 457b also offer pensions paired with the 457 - but you'd need to check on that.
So if I understood correctly, I can withdraw my 457 pre dollars before 59 1/2 and pay income taxes. I cannot withdraw my Roth 457 before 59 1/2 penalty free right? I am looking to retire at 55.
If you are still employed you cannot withdraw your pretax money without paying both income taxes and penalties. The same is true for the Roth portion.
Once you are no longer employed and at least age 55 you can withdraw the tax deferred portion without paying penalties - you will still owe income taxes and there are some rules to follow here. I recommend you reach out to a financial advisor or tax professional before taking action.
Sir, I am 57 years old, I have an autistic son with high spectrum and I do not qualify for supplemental SS because I work too much and I worry very much about his future. However, can I roll my 457 funds into a Roth IRA account when I retire in 8 years from now at 65 years old? And if I can do I still have to pay 20% federal taxes? Thanks!
Hello sir - I understand your concerns :\. It's a difficult spot to be in...
Unfortunately I can't say for certain what your limitations would be RE: the 457. However, when rolling from a 457 into an IRA - if the contributions WITHIN the 457 are traditional (pre-tax) then - no you would not be able to roll those into a ROTH IRA tax free. You could however roll them into a traditional (Pre-tax) IRA and defer the tax.
If you want to roll from a 457 into a ROTH IRA the original contributions within the 457 would have to be ROTH (AFTER TAX).
Hopefully this helps!
@ThePeakFP thank you very much for your advice Sir!
Is it worth contributing in the 457b if there is no match?
It can be - yes. I don't know your particular financial situation, but depending on your age, income, and expenses, I'd say in 85% of circumstances you should consider saving into your 457b in at least some amount.
If you are high income especially it can reduce your taxable income significantly which is a huge benefit. I'm maxing out both a 401k with match and 457b with no match this year.
@@flashbang217… 👍 Even if your not high income it can help with taxes in our case it kept us in the next lower tax bracket. 😎
So if I contribute more to my 457(b) to lower our AGI below $230K (married filing jointly), would we be ale to contribute the maximum to a Roth IRA? Also, If I contribute the Roth 457(b) and my wife also contribute a Roth through her employer, does that count towards the maximum I can contribute to a Roth IRA outside from our employers?
You should consult with your own tax or financial advisor for a direct answer to this - but generally speaking you because a 457b is a NON QUALIFIED plan, you can also contribute to other qualified retirement options such as an IRA or another employer 401k (if available).
Maximum available contributions do not overlap between 457b and IRA accounts.
Hope this is helpful!
At my job we can transfer are sick pay to are 457 it's almost like match. 😊
That is an excellent feature :).
🤩✅
🤗
I just started this month with 100usd per pay check. Would it be fine?