The advantages of a 457(b) savings plan

This COVID pandemic has resulted in an unprecedented level of uncertainty which has been especially difficult for both educators and essential workers, many of whom work in the public sector. They are having to contend with fewer job openings as people are delaying retirement, being subject to budget cuts and wage freeze implementations. Add to all that, considerable anxiety about the safety of returning to the classroom or being on the front lines of interacting with the public.

All of this has triggered immense concerns about finances and the future. Balancing today’s instability with planning for a secure retirement has been challenging.

When it comes to retirement, most individuals want to be self-reliant. They don’t want to depend on others or government programs to exist. They want to be in control of their own destiny, “pay for their life in the future” and be able to enjoy all that’s possible, only limited by their imaginations.

A smart way to help you prepare for the road ahead as you navigate today’s formidable environment is by participating in a 457(b) retirement plan. This voluntary, tax-deferred savings plan—designed for public service employees--is a complement to existing retirement or pension plans which serve government workers.

There are numerous benefits to enrolling in a 457(b), including:

  • Ability to withdraw funds before age 60. Unlike other retirement savings plans, such as 401(k) or 403(b), you can withdraw money from your 457(b) prior to age 59½--and after you’ve separated from service--without being accessed a 10% penalty. However, you will still owe income taxes on any withdrawal made at the time it’s made.
  • Reduce current tax bill. Contributing now reduces your tax burden today. Taxes are deferred at both the state and federal levels until you withdraw the money at a later date, typically when you reach retirement and are in a lower tax bracket.

    Tax-deferred plans also are deducted directly from your salary before your employer withholds income tax—out of sight, out of mind. For 2021, you can contribute up to $19,500 and an extra $6,500 if you are 50 and older. Some employers may even choose to match any or all of the contributions that employees make to their plan.

  • Compound investments—no matter how large or small making regular contributions to a 457(b) will add up to a more financially secure future as the money you invest now will keep compounding as long as it’s in the savings plan.

Finding information about this type of supplemental tax-deferred plan is easy. The Ohio Department of Administrative Services has a list of retirement resources including links to supplemental savings plans like the 457(b). You can also find out more information on the government’s IRS website.

Once you’ve enrolled in a 457(b), there are several investment options to choose from. If you’re like most individuals who aren’t deeply schooled in finance and investing, working with a financial professional can help you plan a path towards a fulfilling future based on your current needs and long-term aspirations. By understanding you and your priorities, a financial professional can help support and guide you towards achieving your retirement goals.

Consider enrolling in a 457(b), even if you’re on a tight budget. You don’t have to commit to sizable contributions to make a difference for your future. You can start with $20 or $30 per pay period and increase the amount at any point when you feel comfortable doing so.

Careers in education, emergency response and municipal government mean putting the best interests and safety of others first. Retirement is your time. Take the steps today to plan and invest in the retirement you deserve.

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Clinton Kersting
Certified Financial Plannertm professional

4000 Smith Rd, Suite 300, Cincinnati, OH 45209
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