457 Plan vs. Roth IRA

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Understanding Roth IRAs and 457 Plans

Roth IRA: A Roth IRA is an individual retirement account that allows you to make after-tax contributions. The major benefit is that your investments grow tax-free, and withdrawals are tax-free in retirement. It’s available to anyone with earned income within the IRS income limits, providing a broad range of investment options to help you grow your wealth.

457 Plan: A 457 plan is a deferred compensation plan offered to employees of state and local governments and certain nonprofit organizations. Contributions are made pre-tax, which reduces your taxable income for the year, but withdrawals are taxed. These plans typically offer higher contribution limits and the potential for employer-matching contributions, enhancing your retirement savings.

Key Differences

FeatureRoth IRA457 Plan
Tax TreatmentContributions are after-tax; withdrawals are tax-freeContributions are pre-tax; withdrawals are taxed
Contribution Limits$7,000 in 2024, plus a $1,000 catch-up if 50 or older$23,000 in 2024, with $7,000 catch-up option if 50 or older
Income RestrictionsYes, based on modified adjusted gross incomeNo income restrictions
WithdrawalsPossible, depending on the employer’s policyNo early withdrawal penalty, but distributions are subject to income tax
Employer MatchNot applicableA broad range of investment options
Investment ChoicesBroad range of investment optionsLimited to options provided by the plan

Pros and Cons

Roth IRA Pros:

  • Tax-free growth and withdrawals
  • No RMDs during the account holder’s lifetime
  • Wide range of investment choices

Roth IRA Cons:

  • Income limits for contributions
  • Lower contribution limits compared to 457 plans

457 Plan Pros:

  • Higher contribution limits
  • No early withdrawal penalty if separated from employment, regardless of age
  • Possible employer match

457 Plan Cons:

Which Is Better For You?

  • If you expect to be in a lower tax bracket in retirement: A 457 plan might be more beneficial due to the tax-deferred contributions.
  • If you expect to be in a higher tax bracket in retirement or value tax-free withdrawals: A Roth IRA could be more advantageous.
  • If you want to maximize your contributions: The 457 plan has higher contribution limits.
  • If you’re looking for flexibility with withdrawals and investments: The Roth IRA offers tax-free and penalty-free withdrawals of contributions and a wider range of investment options.

How We Can Help

At The Annuity Expert, we understand the complexities of retirement planning and the emotional journey it entails. With over 15 years of experience as an insurance agency, annuity broker, and retirement planner, we specialize in finding the best solutions at the lowest costs to secure your financial future.

Addressing Your Core Needs

Many individuals face uncertainty when selecting the right retirement plan. This decision can be stressful, leading to anxiety about the future. We recognize these concerns and are here to help you navigate through them with expertise and empathy. Our goal is to provide you with the confidence and peace of mind that your retirement strategy is optimized for your unique situation.

Our Approach

  • Personalization: Tailoring advice to your specific financial circumstances and goals, making you feel valued and understood.
  • Attention to Detail: Ensuring every aspect of your retirement plan is meticulously considered and executed.
  • Storytelling: Sharing success stories and experiences to connect with you on an emotional level.
  • Surprise and Delight: Offering unexpected insights and benefits to enhance your experience.
  • Empowering Employees: Encouraging our team to take initiative and make decisions that improve your overall experience.
  • Consistency: Maintaining high standards in every interaction, building trust and reliability.
  • Generosity of Spirit: Focusing on your well-being and happiness as the cornerstone of our service.

What We Recommend

Step 1: Initial Consultation

  • Description: Schedule a free consultation to discuss your financial goals and concerns.
  • What Happens: We gather detailed information about your current financial situation and retirement objectives.
  • Main Benefit: Personalized recommendations tailored to your unique needs.

Step 2: Strategy Development

  • Description: We develop a comprehensive retirement strategy based on your consultation.
  • What Happens: Our experts create a customized plan that aligns with your goals, balancing risk and growth.
  • Main Benefit: A clear, actionable roadmap for your retirement.

Step 3: Implementation and Monitoring

  • Description: We help you implement the chosen strategy and provide ongoing support.
  • What Happens: We assist with account setup, monitor progress, and make adjustments as needed.
  • Main Benefit: Peace of mind knowing your retirement plan is actively managed and optimized.

Features and Benefits

  • Comprehensive Financial Planning: Ensures all aspects of your finances are aligned with your retirement goals.
  • Tax-Efficient Strategies: Minimizes tax liabilities to maximize your retirement savings.
  • Diverse Investment Options: Offers a broad range of investments to match your risk tolerance and objectives.
  • Ongoing Support and Adjustments: Keeps your plan on track amidst changing circumstances.

Overcoming Objections

  • Objection: “I don’t know if I can afford professional advice.”
    • Solution: Our initial consultation is free, and our tailored strategies often save you more in the long run.
  • Objection: “I’m not sure if I need a plan yet.”
    • Solution: Early planning significantly increases your chances of a comfortable retirement.

Choosing not to work with us could lead to missed opportunities, tax inefficiencies, and financial stress. By partnering with The Annuity Expert, you’ll experience clarity, confidence, and peace of mind. You’ll feel secure in your retirement strategy, knowing you’ve made the best decisions for your future. Contact us today for free advice or a quote.

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Frequently Asked Questions

How much can I put in a Roth IRA?

For 2024, the contribution limit for a Roth IRA is $7,000 per year. If you are 50 years or older, you can contribute an additional $1,000 as a catch-up contribution, making the total $8,000. Eligibility to contribute to a Roth IRA phases out at certain income levels. Always check current IRS guidelines for updates.

Are 457 plans subject to Required Minimum Distributions (RMDs)?

Yes, 457 plans, which are deferred compensation plans for state and local public employees, as well as certain nonprofit employees, are subject to RMDs. Participants must begin taking distributions from their 457 accounts by April 1 following the year they reach age 73. However, some 457 plans might allow retired participants to delay taking RMDs if they continue to work.

Shawn Plummer, CRPC

Chartered Retirement Planning Counselor

Shawn Plummer is a Chartered Retirement Planning Counselor, insurance agent, and annuity broker with over 14 years of first-hand experience with annuities and insurance. Since beginning his journey in 2009, he has been pivotal in selling and educating about annuities and insurance products. Still, he has also played an instrumental role in training financial advisors for a prestigious Fortune Global 500 insurance company, Allianz. His insights and expertise have made him a sought-after voice in the industry, leading to features in renowned publications such as Time Magazine, Bloomberg, Entrepreneur, Yahoo! Finance, MSN, SmartAsset, The Simple Dollar, U.S. News and World Report, Women’s Health Magazine, and many more. Shawn’s driving ambition? To simplify retirement planning, he ensures his clients understand their choices and secure the best insurance coverage at unbeatable rates.

The Annuity Expert is an independent online insurance agency servicing consumers across the United States. The goal is to help you take the guesswork out of retirement planning and find the best insurance coverage at the cheapest rates

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