Hale County Commission - 457b
What is a 457(b) Supplemental Retirement Plan?
457(b) plans are tax-deferred retirement savings programs provided by certain employers such as state and local government agencies and certain non-profit organizations.
Similar to 401(k) plans, 457(b) plans allow you to contribute pre-tax money from your paycheck to your 403(b) or 457(b) plan to invest in certain investment products. These pre-tax contributions and their investment earnings will not be taxed until you withdraw the money, typically after you retire. For 2023, Roth post-tax contributions are now allowed.
For additional information on the income tax consequences, please consult a tax professional. You may also find general tax information about these plans on the Internal Revenue Service’s (“IRS”) website (IRS, IRS 457(b) webpage).
Contributions
The IRS determines the annual contribution limits for 457(b) plans. In 2023, the annual contribution limit for 457(b) plans is $22,500. In addition to that amount, the 457(b) allows “catch-up contributions” of up to $6,000 for eligible participants (those age 50 or older or turning 50 that year). 457(b) plans have specific rules governing contribution limits and “catch-up contributions.” You can review these rules on the IRS’s website (457(b) contributions).
IMPORTANT! Contribution limits for 457(b) plans may change each year. Please remember to confirm the current contribution limits for each plan on the IRS’s website (457(b) contributions).
Investment Options
As a participant in a 457(b) plan, you can choose among different investments, including a wide variety of mutual funds and a fixed account. These investment choices span all size categories including large companies, middle sized companies, and small sized companies, as well as the investment categories of growth, blend and value. In addition, a wide selection of fixed income choices are available.
Why Save?
Investing in a 457(b) plan can help you build supplemental retirement savings for your future. The Rule of 72 dates back to the 1400s by Luca Pacioli. Simply, the rule of 72 shows how your money can double given a set interest rate.
Rule of 72
| Percentage of return | Number of years to Double |
| 6% | 12 |
| 8% | 9 |
| 10% | 7.2 |
| 12% | 6 |
| 15% | 4.8 |
Example:
Investor #1: A moderate conservative investor places $1,000 into an investment earning 6% annual rate of return. Based on the rule of 72, the principal should double every 12 years. After 12 years, the value would be $2,000. After 24 years, the value would be $4,000. And after 36 years, the value would be $8,000.
Investor #2: A moderate aggressive investor places $1,000 into an investment earning 12% annual rate of return. Based on the rule of 72, the principal should double every 6 years. After 6 years, the value would be $2,000. After 12 years, the value would be $4,000. After 18 years, the value would be $8,000. After 24 years, the value would be $16,000. After 30 years, the value would be $32,000. And finally, after 36 years, the value would be $64,000.
What's the difference? The difference is the amount of risk that Investor #1 took as compared to Investor #2. Investor #1 had a moderate conservative risk tolerance and had a lower return than that of Investor #2 with a moderate aggressive risk tolerance. Their time frame was the same, but 6% doubled only three times as compared to 12% doubling 6 times.
Please click the following link to complete a brief survey indicating your interest in a supplemental retirement plan.
The Lance Hocutt Financial Group is here to help you save for your future! We look forward to assisting you.
