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Start a 457(b)
It only takes a few steps to start a 457(b) plan
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It's important to note that unlike the 403(b) plan, there is no universal accessibility
under the 457(b). This means that employers are not required to make the plan available to all employees. However,
any individual who performs service for the employer, including independent contractors, are eligible to participate
in the plan. Your employer's plan document should spell out the specific rules for contribution.
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1. |
Check with your human resources department or refer to your employer's plan document
to see if you are eligible for participation.
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Ask your employer for a list of the participating investment companies available to you.
This is usually referred to as the vendor list.
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Research the investment providers and their products. Pay close attention to fees and performance.
A fun place to learn
the basics of investing is at Motley Fool.
Another great resource for independent investment information
is Morningstar. Basic content
can be accessed through a free sign up feature, but more sophisticated content must be paid for.
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Go to our discussion
board and post questions about the various investment companies and their products. See if others have had experiences
with these companies and products. Keep in mind that these are just opinions of others and that ultimately only you can
decide the best investment stategy for your situation.
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Next, determine how you want to allocate your money. Studies indicate that more than 90 percent of your
portfolio's long-term return is the result of asset allocation — the process of distributing your investments across
various asset classes in an attempt to moderate the inevitable ups and downs of your portfolio.
See Allocate Wisely for
more information.
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Now, determine the amount of money you wish to contribute monthly. Most companies require at
least $50 per month. For year 2006, you may contribute at total of $15,000 or 100% of includable compensation,
whichever is less. If you are age 50 or older in 2006 you may contribute an additional $5,000.
See 457(b) FAQs for complete details on catch-up provisions.
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Lastly, return to your employer and fill out a salary reduction agreement. This is an arrangement under
which you (the employee) agree to take a reduction in salary. The amount reduced is directed to your 457(b) investment.
These contributions are known as "elective deferrals" and are excluded from your income. So not only have you begun
saving for retirement, you have reduced your taxable income to boot. Nice work.
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