Simply Money Advisors discuss the benefits of Roth IRAs and 401(k)s
Iām single and a firefighter, and we have a pension plus a 457(b) retirement plan. Iām not contributing to the 457(b) right now, because Iām following your plan and in Baby Step 2, which is paying off debt. Our retirement plan is managed by a big life insurance company, but I know you donāt like the idea of using insurance companies when it comes to investing. Can you give me a little guidance?
A.: Iād max out a Roth IRA, which would be $6,000 a year in your case, before I did anything with the 457(b). That may not take you to the level I recommend ā which is putting 15 percent of your income toward retirement ā so then Iād investigate the options offered by the insurance company thatās managing your 457(b).
When you have a look at the options available to you within the 457(b), youāll need to pay special attention to two things ā the fees (this is where theyāll kill you)Ā and the rates of return. If they are somehow accessing mutual fundsĀ and you can get stock market-like rates of return ā Iām talking about a 10 to 12 percent average over many years ā then Iād put some in there.Ā
Still, warning sirens in my head go off when I hear that a life insurance company is running a 457(b). Investing through a life insurance company is a bad idea 100 percent of the time. Now, is it a bad enough idea in this case to avoid it altogether? It may be an OK idea in this specific instance, but chances are it wonāt be anything youāll look at later and be blown away by great results.Ā
Simply Money Advisors discuss how to save without having a 401(k),
That kind of thing just isnāt going to happen when you wrap an insurance company, or life insurance, around investing. I mean, you donāt go to a transmission shop to get your muffler fixed. Itās just not what they do.
Dave Ramsey is an author and radio show host. Follow Dave on the web at daveramsey.com and on Twitter at @DaveRamsey.
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