What Are The Pros And Cons Of A 457 Plan - YouTube

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.