Hi. My name is Phil Ratcliff and I’d like to thank you again for tuning in to another one of our investment programs, this one on Deferred Compensation Section 457(b) plans.
What we’re talking about are the qualified plans. These are the deferred compensation generally for government workers; the police and fire and K through 12 teachers and staff of public universities all have the availability of using these plans.
These plans can be very good. How I’ve put this out here to describe so most people will remember is to have them understand who these plans were originally designed for. They’re originally designed for police and firemen. The reason is, with these jobs, all these individuals serving us, there is a higher mortality rate. We want them to save more and be able to retire earlier. The average retirement age for those professions in Ohio is around fifty-two or so.
When we look at normal retirement plans like 401(k)s and 403(b)s and IRAs, generally there is a ten percent tax penalty if you take money out before fifty-nine and a half. Of course, if somebody’s going to retire on average at fifty-two, we don’t want them to be tax penalized to use their retirement savings.
That’s really where it comes into the name, Deferred Compensation. It’s not as much a retirement plan even though we use it for that as it is deferring your compensation until you take it out in the future.
There are no tax penalties on these types of plans. However, the caveat is if you’re still working for your employer, unlike some of the retirement plans where you can take them out after you reach fifty-nine and a half whether you’re working or not, with Deferred Comp, if you’re still working, you can’t take any money out until you’re seventy and a half and that’s still working for your same employer.
Those are a lot of the rules. Beyond that, they’re very similar to 401(k) plans and 403(b) plans and the fact that in 2014 we can save $17,500 per year if you’re under fifty, and $23,000 per year if you are over fifty. They cannot exclude you from contributing no matter how much you make.
A very interesting aspect where we can use these sometimes with K through 12 and public university teachers are that the 457 plans, the deferred compensation, do not add on to the maximum for like 401(k) plans, for instance.
If you are in that circumstance and you’re in a high income earning year, you do have the ability to use both plans, so potentially put up to $46,000 pre-tax.
Now, I know a lot of you are going to say, oh, I’m never going to see this. You just don’t know. Sometimes you have high earning years or tax that spike or what so, and you really need a break from it. You can take it out over time and it could be very useful. I put that out there so that people know that they have that availability.
Now, in terms of investment selection providers in terms of companies, that’s really dependent on your employer and your personal circumstance and so you actually have to schedule an individual consultation to be able to help with that.
Especially with police and fire, you may have the opportunity to do DROP which is when you initially retire from the pension, you can put some of that pension money back in to your deferred comp to let that grow. A lot of people will retire from a pension but maybe still serve for one to five more years or what so because they’re not quite ready to retire but it makes financial sense for them to do something like that.
If you do have any special circumstances and want to talk to somebody, I’m more than happy to help you, help you run the numbers, the different permutations so that you know what’s really best for you and what you should be doing.
Again, I appreciate your time and I hope this video was helpful. Let us know if you would like to get back together, you can give us an email, a call, there’s even a spot on our website where you can click to schedule an appointment. If you can’t make it out to Gahanna where our office is, you can even schedule a web conference online.
Thank you again, and I wish you the best of luck going forward.