457 B Calculator

457(b) Retirement Savings Projection

Understanding Your 457(b) Retirement Plan

A 457(b) plan is a type of deferred compensation retirement plan available to state and local government employees, as well as some non-governmental tax-exempt organizations. It allows eligible employees to save for retirement on a tax-deferred basis, meaning contributions and earnings grow tax-free until withdrawal, typically in retirement.

Key Features of a 457(b) Plan:

• Eligibility: Primarily for state and local government employees (e.g., police officers, firefighters, teachers, municipal workers) and some non-profit employees.
• Tax Advantages: Contributions are typically made pre-tax, reducing your current taxable income. Earnings grow tax-deferred. Withdrawals in retirement are taxed as ordinary income. Some plans also offer a Roth 457(b) option, where contributions are after-tax, but qualified withdrawals in retirement are tax-free.
• Contribution Limits: The IRS sets annual limits on how much you can contribute. These limits are often higher than other retirement plans, especially if you are nearing retirement (catch-up contributions).
• Withdrawal Flexibility: Unlike 401(k)s or 403(b)s, 457(b) plans generally do not impose a 10% early withdrawal penalty for distributions taken before age 59½, provided you have separated from service. This can offer greater flexibility for those who retire early.
• Investment Options: Plans typically offer a range of investment choices, including mutual funds, target-date funds, and sometimes annuities.

Why Use the 457(b) Calculator?

Our 457(b) calculator helps you visualize the potential growth of your retirement savings over time. By inputting your current balance, annual contributions, expected rate of return, and how many years you plan to save, you can get a clear projection of your future retirement nest egg. This tool is invaluable for:

• Setting Retirement Goals: Understand if you're on track to meet your desired retirement income.
• Optimizing Contributions: See how increasing your annual contributions or the rate at which they grow can significantly impact your future balance.
• Understanding Compounding: Witness the power of compound interest as your earnings generate more earnings over decades.
• Financial Planning: Make informed decisions about your savings strategy and adjust as needed.

How to Use the Calculator:

1. Current 457(b) Balance: Enter the total amount currently held in your 457(b) account. If you're just starting, enter 0.
2. Annual Contribution: Input the total amount you expect to contribute to your 457(b) each year. This can be your current contribution or a target amount.
3. Expected Annual Return (%): This is the average annual growth rate you anticipate your investments will achieve. A common assumption for diversified portfolios is 6-8% per year, but this can vary based on your risk tolerance and investment choices.
4. Years Until Retirement: Enter the number of years you plan to continue contributing to and growing your 457(b) before you retire.
5. Annual Contribution Increase (%): If you plan to increase your contributions each year (e.g., with salary raises or cost-of-living adjustments), enter that percentage here. This helps model more realistic savings growth.

Remember, the calculator provides projections based on the inputs you provide. Actual returns may vary, and market performance is not guaranteed. However, it serves as an excellent guide for planning your financial future.

Example Scenario:

Let's consider a municipal employee, Sarah, who is 45 years old and plans to retire at 65 (20 years). She currently has $50,000 in her 457(b) account. She contributes $10,000 annually and expects her investments to grow by 7% per year. She also plans to increase her contributions by 2% each year to keep up with inflation and salary increases.

• Current 457(b) Balance: $50,000
• Annual Contribution: $10,000
• Expected Annual Return (%): 7%
• Years Until Retirement: 20
• Annual Contribution Increase (%): 2%

Using the calculator with these inputs, Sarah's projected 457(b) balance at retirement would be approximately $709,000. Of this, she would have contributed around $243,000, with the remaining $416,000 being total investment growth.

This example demonstrates the power of consistent saving and compounding over time, especially when factoring in increasing contributions.