We’re going to start with Anita’s question. If you have access, is a 457 the best way to save for early retirement? How do I think about adding a 457 in when you already are maxing out your Roth and can’t max out all of your pre-tax accounts?
Okay, so it’s really interesting, Anita. The question you asked, tell me the first part of a question because the language is really interesting. Is it the best way to save for early retirement? Is it the best way to save for early retirement? Here’s what’s really, really unique. Retirement is so unique and so customized to the individual. It would be difficult to say to someone, this is the best way to do it because your circumstance might be unique and what you want to do in retirement might be unique and your goals and preference and risk tolerance might be unique. Here’s what we will say. 457s are fantastic savings vehicles because they operate a little bit differently than traditional retirement vehicles. A 457, you can put money into it pre-tax or you can put money into a Roth 457 and those dollars can’t continue to grow. One of the great things that happens is when you go to distribute, it doesn’t have the same limitations on distribution like 401Ks or traditional retirement accounts. Generally speaking with a 401K, you have to wait until age 59.5 to pull out those dollars or if you retire after your 55th birthday, you can begin retiring at 55. 457s don’t have those same types of limitations.
It is a wonderful vehicle and a wonderful mechanism for you to be able to save for an earlier retirement. It’s not the only way you should think about earlier retirement when it comes to building your assets. I think probably her question, Brian, that she’s asking, be curious on your thought on this is, hey, I’m not maxing out on my pre-tax stuff yet. So if I’m not maxing out my pre-tax 401K, should I be doing the 457 instead or how do I decide between those two types of accounts? Yeah, I wrote down three big things. Bo, you hit the first one. Of course he is. If we were playing family feud, he’s always going to hit the number one on what people think about first.
That’s that 457s do have superpowers. You talked about they don’t have the penalties and other things. I got to tell you that puts in a lot of positive goodwill at the back of 457s. So then you have to move to the next thing that I had written down, which was number two, is your 457 actually a good plan? Because does it have good investment options? Is it low cost? Does it have all the features? Because they’ve added all kind of, you know, you can now have Roth 457s. You know, just make sure you’ve got, you understand completely all the things that you want to have in your financial toolbox. Because there’s a chance that that 457 that your employer offers does have every checks all the boxes, but you need to go through the due diligence of figuring out the third thing. And this ties into kind of where I think you are leading with the question is what do you need and what can you afford? Because I first always want you to go back to the foundation of where are you and the Financial Order of Operations? Because you do need to get your financial foundation built under you with paying down the debt, getting some cash reserves. And then you can get super serious on how to optimize all of your retirement savings. And there’s a good chance that especially if your employer offers a Roth 457, this thing is going to check a lot of the columns on the positive side that you’ll be out. Yeah, this thing, if my, if 25% of my income, say I make less than $100,000, low putting up 25% of my gross income, a lot of that’s going to probably fall into that camp if I have a really good 457, but you can’t skip the steps. You got to do those three things to make sure that it does check all those boxes for you.
Now if you, I noticed a need that you said, hey, I’m not in the position where I can max out all my pre-tax accounts. So should I do the 47? Another thing that you should be aware of though, if as if you are someone who has access to a 457 and maybe you are a higher income individual and you do have a lot of a ability to discretionarily save, one of the beautiful benefits of 457’s is they, they live in a different part of the tax code than the 401k. So they’re not subject to the same salary deferral limit. So it’s not uncommon for someone who has access to both where you can do $22,500 into a 401k and another $22,500 into a 457. So you can really hypercharge, hyper accumulate inside of your retirement accounts if you have access to both and you have the means through which you can save that one. Yeah, so all my college professors, my doctors that work at hospitals, I’m looking at you because that’s where we typically see the double up opportunity. Double up, double up. Was that a little, I put a little bit in there, you know? I love when he does lyrics.
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