The Pros and Cons of a 457 Plan: What You Need to Know

So you've heard about 457 plans and you're wondering if they're right for you. Well, you've come to the right place! In this article, we'll break down the pros and cons of a 457 plan to help you make an informed decision about your financial future.

Pros:

1. Tax advantages: One of the biggest benefits of a 457 plan is the tax advantages it offers. Contributions to a 457 plan are tax-deferred, meaning you don't pay taxes on the money you invest until you withdraw it in retirement. This can help you save more over time.
2. Higher contribution limits: Compared to other retirement plans like 401(k)s, 457 plans often have higher contribution limits, allowing you to save more money for retirement each year.
3. Flexibility: 457 plans offer a lot of flexibility when it comes to withdrawals. Unlike some other retirement accounts, you can access your funds penalty-free before age 59 ½ if you separate from your employer.
4. No early withdrawal penalty: In certain situations, such as unforeseen emergencies or medical expenses, you may be able to withdraw funds from your 457 plan without facing an early withdrawal penalty.
5. Employer contributions: Some employers offer matching contributions to their employees' 457 plans, which can help boost your savings even more.

Cons:

1. Penalties for early withdrawals: While 457 plans offer flexibility, early withdrawals for reasons other than separation from your employer can result in penalties and taxes.
2. Limited investment options: Some 457 plans have limited investment options compared to other retirement accounts, which can restrict your ability to diversify your portfolio.
3. Restricted access: Unlike 401(k) plans, which allow penalty-free withdrawals at age 59 ½, 457 plans require you to separate from your employer to access your funds without penalty.
4. Income limitations: Some high-earning individuals may not be eligible to contribute to a 457 plan if they already participate in other retirement plans.
5. Less common: 457 plans are less common than other retirement accounts, which means that not all employers offer them as an option for their employees.

Now that you know the pros and cons of a 457 plan, you can make a more informed decision about whether it's the right choice for your retirement savings. Remember to consult with a financial advisor to discuss your specific situation and financial goals before making any decisions.