Drawbacks To Opting For The 457 Retirement Plan

Drawbacks To Opting For The 457 Retirement Plan

When the 457(b) retirement plan was initially introduced, it did not have too many advantages. It did not have the flexibility of paying more, as it does now, nor did it have the trust of a qualified plan. However, with the passage of time and certain revisions, this scheme has become quite a favorite amongst potential retirees who see it as a great way to add in as much as they can according to their own convenience. However, there are many problems with this plan, as listed below. Before deciding to invest in this plan, read on:

Not every employer is eligible for a 457(b) retirement plan
One of the biggest drawbacks of the 457(b) retirement plan is that it is not made for everyone. Employees of tax-exempt organizations cannot opt for the 457(b) retirement plans. It is also highly preferred by people who are compensated very well. This makes it less accessible to many employees.

Non-qualified retirement plan
This depends on the perspective of the participant. You can view it more as a con than a pro. Although it is a non-qualified plan, which makes it much easier for the participants in terms of documentation, it does have fewer advantages compared to other conventional retirement funds. The Employee Retirement Income Security Act of 1974 offers many advantages to the other funds that are not available for the 457(b) retirement plans.

Fees might be a little higher than normal
An employment match is very rare to find when it comes to the 457(b) retirement plan. Since most employees, especially government employees, have retirement funds coming through regular pensions, they view the 457(b) retirement plan as a supplemental income. To lure participants into opting for this plan, some advantages are oversold, and the fees are slightly higher. However, this just means more savings, but it can get difficult for people to contribute enough to this fund.

Withdrawals are not very easy
With other retirement plans, there is a provision to withdraw money when you have to buy a new house or to pay for the tuition of your children and grandchildren. However, with the 457(b) retirement plan, withdrawal is not as easy. You must pay a high penalty if your reason is not very catastrophic. The withdrawal is tough, making it very tough to withdraw money to fall back on before it matures.

Works better as a contribution with other plans
While 457(b) has a lot of advantages, it works much better as a supplement to other plans. You can choose to contribute to two retirement funds and take advantage of both funds. This will also help you retire with a comfortable amount of money in your account.

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