I recently started a 457 plan through work so I figured I would write a short article about it as well as my holdings.
A 457b plan is a kind of retirement plan available to state and public employees and can be offered by nonprofit organizations. It is very similar to a 401k in that you can opt to contribute to your plan from your salary. These contributions are made pre-tax and grow tax-deferred until withdrawing the money, at which point the money will be taxed. Contributions are limited to an annual maximum dollar amount. For 2016 the maximum contribution is $18,000 annually. Many questions arise when starting a retirement tax-deferred retirement account such as how much money to contribute and what funds to put it in.
If it were possible, I would contribute the full $18,000 per year to my 457 plan. Unfortunately, I’m not in a position where I’m able to do this. Most companies will make you decide on a percentage of your salary to contribute. My job uses Nationwide for our 457 and we’re able to decide if we want to contribute a percentage or a set dollar amount. I decided to choose a set dollar amount. Though there are advantages to selecting a percentage. The major advantage is that when you get a raise in your salary your contributions will increase as well. I manage my money very actively so deciding when I need to increase my contributions isn’t a problem for me.
I decided I would contribute $200 of pre-tax income every paycheck(bi-weekly). This is a little over 20% of my pay but it doesn’t actually amount to that because of the tax savings. I will adjust my contributions as I get raises to stay right around 20%.
As I previously stated my job uses Nationwide for our 457 plan so coincidentally I decided to invest in some Nationwide funds. They had better expense ratios, history and asset allocation than most of the other similar funds available. For those of you who read my Roth IRA post you know that I’m a big fan of index funds. These are the funds I chose and my allocations:
1.) Nationwide S&P 500 Index Fund 40%:
The fund seeks to provide investment results that correspond to the price and yield performance of publicly traded common stocks, as represented by the Standard & Poor’s 500® (S&P 500) Index. The expense ratio is 0.42%. The YTD growth is 7.45% and the 5 year growth is 12.90%.
2.) Nationwide Mid Cap Market Index Fund 20%:
The fund seeks to match the performance of the Standard & Poor’s MidCap 400 Index (the S&P MidCap 400 Index) as closely as possible before the deduction of Fund expenses. The expense ratio is 0.68%. The YTD growth is 12.11% and the 5 year growth is 11.57%.
3.) Nationwide Bond Index Fund 20%:
The fund seeks to match the performance of the Barclays U.S. Aggregate Bond Index as closely as possible before the deduction of fund expenses. The expense ratio is 0.68%. The YTD growth is 5.64% and the 5 year growth is 2.93%.
4.) Nationwide U.S. Small Cap Value Fund 10%:
The fund seeks to provide long term growth through U.S. small cap companies. The expense ratio is 1.43%. The YTD growth is 8.41% and the 5 year growth is 9.95%.
5.) Invesco International Growth Fund 10%:
The fund seeks long-term growth of capital by investing in a diversified portfolio of reasonably priced, quality international companies with strong fundamentals and sustainable earnings growth. The expense ratio is 1.31%. The YTD growth is 5.50% and the 5 year growth is 2.70%.
Similar to my Roth IRA, this is a long-term setup. I don’t plan on having to change or alter this portfolio much except to adjust my contribution amount. I just started my 457b plan last July so I’m hoping I see decent returns this year! As always, updates of my portfolios will be included in my monthly cash flow and goals update.
What does your 457b / 401k look like?
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