How does the 457 plan work?

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A 457 plan offers unique benefits, particularly for public employees. Here’s a concise overview based on insights from Brad Barrett:

Key Features of a 457 Plan:

  1. No Early Withdrawal Penalty: One significant advantage is that funds can be withdrawn without the typical 10% early withdrawal penalty once you separate from service. This offers flexibility uncommon in many other retirement plans 1.

  2. Early Retirement Usage: It's useful for those planning early retirement. For example, if you fully fund your 457 account over 10 years with $18,000 annually, you could accumulate a substantial nest egg, which can provide bridge funds until pension availability or Social Security starts 2.

  3. Separate Contribution Limit: 457 plans allow you to have an additional contribution slot beyond what’s available in 401(k)s and IRAs. This enables maxing out multiple accounts and increasing your retirement savings significantly 3.

    Tax Optimization Strategies

    Millionaire Educator shares unconventional tax strategies involving IRA contributions to optimize tax efficiency. Brad highlights the benefits of 457 plans for public employees, emphasizing the flexibility in accessing funds. Jonathan applauds the unique approach, foreseeing a transformative impact on listeners' financial planning.
    ChooseFI
    013 | The Unfair (FI) Advantage of Teachers | 457b
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Using a 457 plan strategically can facilitate early retirement and enhance financial flexibility. Always consider your specific situation, including income levels, pension, and Social Security benefits, when making contributions 4.

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