Category: Financial & Investing
Keywords: 457b, retirement, investing (PubMed Search)
Posted: 1/29/2012 by Dan Lemkin, MS, MD
Click here to contact Dan Lemkin, MS, MD
Many physicians have the opportunity to invest in a variety of retirement funds. The most common commercial vehicle is a 401k. Academic and non-profits have access to an analogous 403b. Many physicians also have access to a 457b.
It is important to understand what it is, and most importantly how it differs from a conventional 401k or 403b. Like its' peers, it permit pre-tax contributions of a finite amount. They are offered through your employer and are bound to a specific vendor(s). These vendors provide a select number of investment choices specific to the employer contract. The maximum contribution for 2012 is $17,000.
The 457b is different from the other investment vehicles because of who and where your funds are held:
Non-governmental 457 plans have a number of restrictions that governmental ones do not. Money deferred into non-governmental 457 plans may not be rolled into any other type of tax-deferred retirement plan. It may be rolled only into another non-governmental 457 plan. Also, money deferred into non-governmental plans is not set aside in a trust for the exclusive benefit of the employee making the deferral. The Internal Revenue Code requires that money in a non-governmental 457 plan remains the property of the employer and is thus available to general creditors of the employer in legal or bankruptcy
If you work for a private entity, or a non-profit and they offer a non-governmental 457b, your personal funds are pooled with corporate resources. Your retirement contributions are at risk, should the company default and declare bankruptcy. This risk is apparently not born by GSRA 457b (Governmental agency 457b plans). A decade ago, this risk would seem insignificant. With the number of large companies and municipalities defaulting in this economic climate, prudence is warranted when considering this investment vehicle. DISCLAIMER - This pearl is not intended to provide financial advice. Please consult your HR department and / or financial advisor for additional information and advice.
