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403(b) and 457 Plans - How They Work Together? l CA$H IN WITH CASSIAN - YouTube
Channel: Cash-in with Cassian
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the best retirement vehicles for a very exclusive聽
club let's cash in finance for the everyday聽聽
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millennial hard charging solutions we聽
provide an accelerant in the journey聽聽
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towards financial independence today we are聽
going to be discussing four 3b plans and how聽聽
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they work together with 457 plans if you are a聽
public school teacher you have a lot of options聽聽
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to consider when it comes to retirement and it聽
can be hard to choose which one you should do聽聽
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today we're going to be discussing how they聽
work together and which one might be the best聽聽
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fit for you to better understand these plans聽
let's look at some of the similarities first聽聽
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they both offer pre-tax contributions from your聽
salary these contributions serve to reduce your聽聽
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taxable income each year both 457 and 403 b plans聽
allow for contributions up to twenty thousand five聽聽
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hundred dollars per year in 2022 now it is very聽
common for these limits to increase over time聽聽
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so it is possible if you're looking at this at聽
some point in time it may be more but in 2022聽聽
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the limit is 20 500 and if you're age聽
50 or older you have the option to make聽聽
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catch-up contributions which will allow you to聽
contribute an additional 6 500 per year in 2022聽聽
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so that total that you can contribute to both聽
a 403b or a 457 plan is 27 000 you can also聽聽
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contribute after tax dollars to both the 403b or聽
457. this is where you make contributions that聽聽
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are not traditional or pre-tax for example聽
you would contribute money into a roth plan聽聽
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or after tax portion of the 403b or 457 you聽
won't get a tax deduction in the year that you聽聽
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make the contribution but you will be able聽
to receive tax-free income when you retire聽聽
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that's a big distinction between traditional聽
pre-tax contributions pre-tax contributions聽聽
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allow you to reduce your taxable income in the聽
year that you made those contributions however聽聽
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when you retire you're going to be聽
taxed on whatever you pull out of聽聽
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those retirement accounts with roth or after tax聽
contributions those withdrawals in retirement or聽聽
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tax free and that can make a significant impact聽
on your overall financial situation in retirement聽聽
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both 403b and 457 plans allow you to contribute聽
to a variety of different investment options聽聽
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most often that is going to involve mutual funds聽
index funds or municipal bonds both of these聽聽
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retirement plans allow you to take your money聽
with you if you leave your job for example if聽聽
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you accumulate retirement funds in your 403b聽
or 457 and you decide to leave your job or take聽聽
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advantage of some new opportunity you don't have聽
to leave your money in that 403b or 457. both of聽聽
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those plans allow you to roll over your retirement聽
funds into your own individual retirement account聽聽
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or ira now the main differences between a 403b聽
and a 457 plan involve how and when you take聽聽
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distributions with a fourth review plan you聽
can take a withdrawal from the account without聽聽
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any penalties if you retire after the age of聽
55 however if you're still employed the only聽聽
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way you can access funds in a 403b may be via聽
a hardship provision and even with a hardship聽聽
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provision you will still be assessed a 10 early聽
withdrawal penalty in addition to ordinary income聽聽
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taxes that you may owe if those funds were in a聽
traditional account with the 457 plan you can take聽聽
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a distribution at any age and most importantly聽
there is no 10 early withdrawal penalty聽聽
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now that we've covered some of the differences聽
and similarities between the 457 and forward 4d聽聽
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plans let's talk about how these plans can work聽
together as you remember earlier in this video i聽聽
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discussed something called a catch-up contribution聽
a catch-up contribution was made available by the聽聽
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rrs to help those who haven't started saving for聽
retirement and are over the age of 50 to give聽聽
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them an opportunity to catch up for all those聽
years that they hadn't been putting money away聽聽
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so they allow an additional six thousand five聽
hundred dollars per year on top of the 20 500聽聽
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limit in 2022 the reason why these are some of聽
the best retirement vehicles is because you can聽聽
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actually contribute to both yes you heard me right聽
you can contribute to both a 403b and a 457. let's聽聽
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say for example you are aggressively saving for聽
retirement and you want to make sure to hit the聽聽
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maximums that the irs allows in 2022 if you're聽
under the age of 50 that's going to be 20 500聽聽
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so if you're under 50 and you're maxing out聽
your 403b you can start funding a 457 plan聽聽
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now as you can imagine if you're under age 50聽
that's going to be a significant amount just take聽聽
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20 500 and a 403 b and consider the limit on a 457聽
which is also 20 500 that allows you the potential聽聽
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to contribute 41 000 in a retirement account where聽
most other folks are not going to be eligible聽聽
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but because you are eligible for both the 403b and聽
457 you can take advantage of these much higher聽聽
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contribution limits once you get really aggressive聽
with your retirement savings and you're over the聽聽
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age of 50 you can take advantage of the catch-up聽
contribution limits on both the 403b and 457 plan聽聽
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that will allow you to contribute聽
27 000 to 403b and 27 000 to 457聽聽
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for a grand total of 54 000 worth of retirement聽
contributions in one year are you contributing聽聽
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to a 403b or 457 or possibly both let me聽
know in the comments section until next time聽聽
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thank you for watching and remember it's聽
always a good time to cash in with cash
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you
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