The 457 retirement plans have some advantages which cannot be understated. Some of the most striking ones include the following:
Withdrawals Are Not Subject To Penalties
This is by far one of the best advantages of the 457 retirement plan.
For any reason whatsoever, that might prompt you to want to withdraw your funds beforehand, you will not bear the 10% penalty tax as is currently the case with the 401 (k) and 403 (b) plans.
I’m referring to decisions such as early retirement, emergency issues, changing jobs, and even resigning. Whenever you have the need for some urgent cash, it is absolutely safe to withdraw.
You should, however, restrain from taking a huge lump sum at any one time, as this would be subject to huge income taxes.
You Pay Fewer Income Taxes When You Save More
Your contributions to your 457 savings account are made directly from your pretax income, thereby reducing the total taxable amount. The end result is fewer taxes paid at the end of each year.
What actually happens is this. If you earn a total of $10,000 at the end of each month, and you decide to save say $3,000 to your account, your income taxes would be applied on $7.000 instead of $10,000.
No wonder some limits have been fixed with regards to the amounts you can save per year using this retirement plan. If there were actually no limits, I’m pretty sure this would have encouraged many more people to save more.
You Can Use Your Savings To Invest In Mutual Funds And Earn Interests
When you realize that your savings accounts are picking up on size, you can start investing to earn interests which are tax-free, until you decide to withdraw them.
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