Hello I’m Tom Nugent, and welcome to MemberMinds where we explore retirement and other financial matters affecting our members. A 457(b) savings plan is an employer-sponsored retirement plan available to governmental, educational, healthcare and other nonprofit employers that fall under Section 501(c) of the IRS code. For eligible employees, participating in a 457(b) plan can be a great way to help them achieve their retirement goals. Today we’ll discuss what a 457(b) plan is how it works with Robert Young, a registered representative for PlanMember. Hello Robert, and welcome to MemberMinds. Thank you Tom, it’s great to be here. Can you give us a brief overview of a 457(b) plan what’s the advantages, and why you should use one? Sure. Well I think there’s several things: first of all for eligible employees it allows them to be able to put the money away in the plan for retirement. The thing is, it’s nice because it can take you directly from their check through payroll deduction, and there’s some pretty good tax advantages to it as well. And then the actual money can be invested in the plans different investment options. What type of organizations can offer 457 plan? In essence there’s really two. So there is governmental and non-governmental. On the governmental side you’re going to see school districts, municipalities, state governments, that sort of thing. And then the non-governmental you’re going to probably see healthcare and nonprofits for the most part. And what are the tax advantages of these 457(b) plans? Ok so the contributions for the governmental plans and the non-governmental plans can be put in pre-tax, then they grow tax-deferred and of course taxes will be paid on those at your ordinary income tax rate when they pull that out, but the governmental side you can also do Roth contributions too. And the Roth contributions are an after-tax contribution that still comes out of the employee’s paycheck, but there are a hundred percent tax free when they pull them out. So you’re telling me then that you cannot do that for a non-governmental 457(b) plan? That’s correct. What other differences are there between the governmental 457(b) plan and the non-governmental plan? Several differences and first of all they allow an age 50 catch up so if you’re age 50 or older you can put an additional amount in. The other thing is that they can restrict eligibility into the plan, but ultimately they are available to all employees in it. And the other thing is that they can allow loans assuming that the employer, in their plan document, allows it. On the non-governmental side they don’t have the age 50 catch up. The other difference is they don’t allow loans, they don’t allow rollovers, and as a little side note: in the event of a bankruptcy it may not provide protection against general creditors. Are there any other features of a 457(b) plan relative to other retirement plans that are worth noting? I think with a lot of people there is confusion and they assume that they can’t get to the money until they’re fifty nine and a half, or 55 and separated like a 401k plan or 403(b) plan and that’s not the case. With a 457(b) they just have to separate service and they can access the money without an early withdrawal penalties from the IRS. And the nice thing about that is that I can think of a particular case I have right now: Client’s in his early fifties, he’s going to be retiring from the governmental area and he’s going to use that money while he’s getting his PhD and going into an entirely different area to practice.
Well that’s going to allow him to access that money at 52, 53 years old, which he can do with the 457 and he couldn’t’ve done with the other types of plans. So it’s a great option for them. Are there other circumstances versus leaving the job that you’re in, that you can begin taking withdrawals from your 457(b) plan? Well there’s a couple different things: one is if the client has $5,000 or less in their account they can access the money. And the second one would be through the situation where they had an emergency hardship, they can apply for an emergency hardship withdrawal. And it is something that would have to be approved for their third party administrator through their employer. I understand that some employers offer both the 457(b) plan and a 403(b) plan. Can employees contribute to both? Yes as one of the unique features about those is that you can put the maximum in the 403(b) plan and the maximum amount in a 457(b) plan and you can actually do the catchup provision on the governmental plans on both of those. Is there any limits two contributions to a 457(b) plan? There are limits. What happens the IRS every year in October they post what the limits are and of course you can go to the PlanMember website and take a look at it and see what the limits are because not only do the limits change, but the catchup revisions over time have changed as well. Are there any other characteristics of 457(b) plan that we should be aware of? So you can tell there’s a lot of different options when it comes to 457 plans. Our suggestion is really to get together with your PlanMember professional and sit down with them and discuss what the different options are for you. Thank you for being with us today and thank you for joining us at MemberMinds you can find more information about a 457(b) plan on your PlanMember financial professional’s website. And remember the future favors the prepared mind. See you next time.