457 - Your golden ticket to financial freedom

Welcome to the Fiscal Firehouse.  A podcast dedicated to professional firefighters.  On todays episode, Jon & Louie will talk about their favorite supplemental retirement vehicle: the 457.  In this episode you will learn about the power of the 457 and how it can be your ticket to financial freedom.  Jon & Louie will discuss contribution limits, distribution strategies, and answer the age old question "should I contribute to a traditional or roth 457?"

What is Fiscal Firehouse?

Come join a groundbreaking new podcast that promises to change the way you think, the way you live, and the way you manage your future. Grab a cup of coffee, a 6mg Zyn, some noise-canceling headphones, and get lost in the world of the Fiscal Firehouse. With your co-host Jon Beattie and Louie Barela, the Fiscal Firehouse is your guide to financial freedom. Tailored to union firefighters, we will discuss problems, solutions, and benefits that are unique to our profession. Change your finances, change your life at the Fiscal Firehouse. Brought to you by Local 1309.

Intoduction: Welcome to the
fiscal firehouse, a podcast

dedicated to promoting financial
literacy to firefighters.

I'm your cohost, John Beatty,
executive board member of local 1309,

a lieutenant, and also a certified
financial planner with me, I have the

other cohost of the fiscal firehouse,
Louie Borrella, executive board member

of local 1309 ambulance driver, and
want to be financial expert together.

John and I hope to bring clarity
to the world of personal finance,

specifically relating to firefighters.

Firefighting is a difficult job.

Making sound financial
decisions shouldn't be.

In today's episode of the
Fiscal Firehouse, John and Louie

will discuss their favorite
retirement vehicle, the 457 plan.

John and Louie will also discuss
strategies to implement that will

better prepare you for retirement.

Without further interruption, let's
go to local 1309 Studios and the

recording of the Fiscal Firehouse.

Jon: welcome back to another
episode of the Fiscal Firehouse.

I'm one of your co hosts, John
Beatty, with me in local 1309 Studios.

I have my other brother from
another mother, Louis Barela.

Louie: Howdy, howdy.

Jon: I was going to do
another intro for you, Louis.

It was going to be Louis, go blue, Barela.

Go

Louie: hard to go blue right now.

It's so hard to go blue.

Jon: for those of you that don't know
Louis outside of the confines of West

Metro, Louie's a diehard Michigander fan.

I mean, he went to Michigan.

He actually just got back
from the Oregon game.

Him and brother Norwood were out there.

and Reed brother Norwood is a
Oregon duck and, do their crushing

Louie: Oh my gosh.

Number one team in the country.

By

Jon: By far, they are like lights out.

Louie: No weaknesses.

They look good.

We had a great time in Michigan.

It was awesome.

It's my first time back
in like seven years.

Reed had a great time.

I had a good time.

Jon: Reid had a great time.

Louie: time, but we got
to walk around the campus.

We got to look at my old business
school, which is a new business school.

Now it looks fantastic.

Did not did not look like
that when I was there.

We went to my old frat house.

and played beer pong with a
couple of, I don't know, 20 year

old dudes or 21, probably 21.

Jon: uh huh,

Louie: they just crushed us, of course,
but it was as disgusting as it ever was.

I can't believe I'd lived in
that house for three years.

I am like the van Wilder.

I could still go back if I had a hairline,

Jon: You know, and I could
still go back to school.

I, I love school every bit of it and
highly encourage that experience.

there's nothing that will replace that I
never asked you how you actually ended up

picking michigan or did michigan pick you?

Louie: So I, you know, I, I was lucky
enough to have a full ride scholarship

to school that I wanted to go to.

So I narrowed it down to a few,
like I was looking at Texas.

and I was really interested
in business at the time.

I didn't know what that meant,
but I felt like business.

I want to do business.

It just sounds cool.

Yeah.

Let's make some money.

Jon: some numbers.

Louie: So, when I was in the application
process, this was in 2000 and I guess

three, in high school, Michigan was
ranked the number one business school in

the country by the wall street journal.

And that had made headlines.

And when I saw that
combined with like the.

Football history, you know,
everything from the winged helmets

to the big house and all that stuff.

I was like, that would
be a cool place to go.

Didn't really think about the cold.

Didn't really think about the
winters in Michigan that might've

made me choose another place.

But, I was just like,
that'd be really cool.

So.

Decided to go there for the
business school primarily,

Jon: did you do a visit before
you attended or did you just go

Louie: You know

Jon: in and be like, this is what,
this is where I'm meant to be.

Louie: I did do a visit but it was like
the only out of state place that I visited

didn't have time or resources to go to
like texas or some of those other places

So I was like, I think I like michigan.

This is it.

Let's go had a great time there,
but man, the winters are cold.

I I don't I miss the falls.

I do not miss the winters Yeah

Jon: And you know, me being
a Midwestern or growing up in

Louie: Oh yeah.

You're used,

Jon: people just don't understand,
like, if you've lived in Colorado

your whole life, like you just think
the sun is out 300 days a year in

the majority of our country, it's not

Louie: it is not.

Well, and the other thing you don't, the
other thing you don't realize is you're

like, Oh, it's going to be 50 degrees.

So for someone who's from Colorado, they
hear 50 degrees and they think of 50

and sunny, Oh, it's going to be great.

Like I don't even need a jacket.

Right.

But 50 degrees in the Midwest.

With the humidity, with the wind,

Jon: bone chilling

Louie: bone chilling,
like you will be freezing.

You're like, why don't I have more
layers on for 50 degree weather?

So 50 degrees is not the same everywhere.

And same thing with obviously at
like 32 degrees or 10 degrees.

So, but no, we had a great time.

Jon: that story.

I love that.

I'll have to have a readout.

So I went to, I, I matriculated for a
couple of years at, Madison at Wisconsin

Louie: on Wisconsin

Jon: camp Randall.

And, same thing.

We'll maybe have to get the three
of us out for another big 10 trip.

Cause those are so much

Louie: it.

And let's, and we're going to
go to, Oregon in two years.

Michigan is playing at Oregon.

So, hopefully Michigan can right
the ship and we can, go down

there and return their favor.

Awesome.

Jon: I love that.

Well, dude, hats off to you.

That's a huge, a huge accomplishment
to really have a full ride to

pretty much your school of choice.

And, you know, we have had
been having a lot of fun.

Feedback, from the, from the
listeners, so to speak on college

funding and college education.

And, we will do a segue, an
episode directly, tied to that.

Cause not every kid is going
to have that opportunity.

so we want to make sure that we're
planning for our families and our

kiddos and, and, you know, offering
the help that, if it's within

our financial house to do that.

So that's something, I've definitely,
we've heard some feedback on

and it's, we've got a long list,
man, that whiteboard is getting

full with a lot of things, that,
the listeners want to hear too.

Louie: And I want to thank
the listeners for, you know,

we, we get a lot of in person.

We were just talking about this
before we started recording.

We get a lot of in person comments
and people telling us what they

really like or what they want to hear.

That's awesome.

We also get a lot of questions submitted
to the askfiscalfirehouseatgmail.

com address, just with questions.

You know, feedback,
suggestions, episode ideas.

And so we're not ignoring those.

We're not putting those, you know,
away and, and not addressing them.

We're kind of just waiting.

We're waiting so that we can
either have an episode where we

discuss a listener questions or
where we can kind of build them in.

To the agendas that we're kind of
talking about through the episodes.

So we're, we're taking those seriously.

We'll go through them.

We just appreciate your guys
feedback and all the wonderful

things you've said and all the,
all the good critical feedback too.

We want it all.

We, I think we get better every
episode when we get those kind of.

That kind of feedback,

Jon: dude, a hundred percent.

And, yeah, it definitely
keeps us motivated.

anytime that we feel like you could
even have the slightest of impact

on someone in a, in a positive
way, it, it, it keeps us moving.

So we are super excited.

And this is really, this is kind of
the granddaddy of them all podcast.

I guess, if you will, we're going
to talk about the old four 57.

Louie: The only thing
cooler than a 3 57 is a 4 57

Jon: That's that's right.

That's that is some nerdy nerdy fight
finance jokes but this is the one that

it is just like the Golden ticket if you
will to in my opinion financial freedom

in financial options really moving
forward And you never want to give just

complete blanket advice to anyone without
knowing their personal circumstances

But this is one that I mean, you know
Overarchingly if anyone gave me like

you can give one piece of advice to any
firefighters out there Like how can you

set yourself up for success in the future?

It would be to fund your 457 hands down
if that's the only advice I could ever

get that was my last breath I could give
to someone It would be like Use this 457

to all its advantages and in this episode
We're going to talk about those advantages

and how it's structured and everything
else like this But this is really one

that's applicable to all firefighters.

I don't know Of a fire department that
doesn't offer their members a 457.

So

Louie: One and John, you've been around
for a while now in all your years of

seeing people retire and seeing, you
know, dealing with active retirees.

Have you ever had one retiree come
and tell you, man, I really regret

that I contributed to a four 57.

I wish I didn't put money in a forfeit.

Has that ever happened?

Jon: Yeah, man, I just have,
so much money in there.

I don't even know what to do with it all.

I, you know, I've never
once received that.

It's always the contrary.

It's like, man, I, I just wish I
would've known more, or I wish I would.

been able to put more money away and
there was a lot of almost more regret,

that they just didn't fund it to the
capacity that could have been funded to.

And there was different, different,
you know, lifestyle circumstances.

But, yeah, no, overarchingly everyone is
like, this is what actually allowed me.

To get out of here when I wanted to
get out of here, and without name and

names, you know, just a little case
study, it's just at the training center.

And we had a member come through and
they're getting ready to retire next year.

this is the first of my knowledge, at
least for our membership where someone

is using the rule of 80 and they will
basically be, they got hired at 20.

They got 30 years of service.

So they're 50 years old and they're
gonna have 30 years of service.

So they're gonna meet that rule of 80
We'll talk about the rule of 80 more

when we get into the pension episode
but really they're the first one

that i've seen, be able to reach the
rule of 80 At that young of an age.

And, you know, their whole plan is
they're going to end up deferring

their retirement for some years.

They're going to live off of their four
57 monies, for the next couple of years.

and they're talking about traveling
around the country and even going

international, they homeschool their kids.

And I can't tell you, like, I must,
I must've looked like the joker

because of the smile on my face.

And I just want, I just wish
that was available for all of our

Louie: everyone.

Yeah.

We want

Jon: have that.

Option and whether or
not you take that option.

That's totally on you and your
circumstances in your family

circumstances, but to be able to make that
move at that age, man, I want to, speak

from the mountaintops and just preach
just like how cool of an opportunity that

Louie: well, and that's why we're here.

That's, that's why we're here.

So yeah, you said it like in the, in the
one, two punch of retirement, like that,

that jab, I guess would be the pension,
which we'll talk to in another episode.

But this is the, this is the cross.

This is the overhand cross is the four 57.

And maybe we'll, you know, eventually
we'll talk about the, the uppercut,

which will be the IRA talking about that

Jon: that's, that's a, yeah.

The, the Evander Holy field.

Yeah,

Louie: but, but in the retirement,
like the four 57, this is

a huge way of getting you.

where you need to be Retiring when
you want to retire and making sure

that you are okay in retirement With
that reduced pension amount that

you'll receive when you retire, so

Jon: Let's kick it off.

Let's let's talk about what so and that
the other thing is and you know The

thing that's frustrating from like a
an educational standpoint is I think,

financial media and people in finance
or literature They like to make this

stuff really complicated with all the
and the fire service is equally as

guilty The medical community is equally
as guilty as acronyms and all these

other things 457s 401a is K's 403 B's.

I mean, it's just like alphabet
soup as Louie likes to call it.

so we're going to help, demystify
some of these terminology as well.

And just so you can talk on a, on a
normal level and be able to, explain

it to, to even someone that's not
interested in this stuff at all.

And that's really our goal
here at the fiscal firehouse.

So let's start with just the
basics of, what is a four 57 plan?

Louie, you want to just
kind of kick it off

Louie: And just

Jon: give a little, overview
of what the four 57 is.

Louie: yeah.

Yep.

Absolutely.

So the 4 57 is a tax advantaged, employee
sponsored retirement plan, and that's just

a really full way of saying that it is a.

Retirement plan that you can
contribute out of your paycheck.

Your employer has to allow it You know
have this plan sponsor the plan and

allow you to Put money from your paycheck
directly into the plan it can with 457s.

They can be either Governmental
or non governmental?

And even the non governmental is
more like a quasi governmental

Jon: yeah it's like non profit stuff yep

Louie: Non profit.

but basically it allows you to contribute
money from your paycheck on either a pre

tax, also called a traditional basis, or
a post tax, often called a Roth basis.

We'll talk more about that
in a, in a minute or so.

but In just to simplify it, because
a lot of people know this term,

it's very similar to a 401k.

So if you go to a regular, if you have
a corporate job or a regular job with

a big company, you often have access to
a 401k while this is the governmental

Jon: or

Louie: Nonprofit version of a 401k.

In fact, it's so similar
that the contribution limits

are very often the same.

They're almost always the same.

the rules are also very similar.

I would actually say that
457s are a little better.

And we'll talk about some
of those advantages, but.

Just to, just to get you guys in the
right mindset, you can think of the

four 57 as our version of a 401k.

there's some confusion though, when we
talk about four 50 sevens or, or, or Roth

four 50 sevens, a lot of people will, kind
of get confused and think that they're,

we're talking about IRAs or Roth IRAs.

And that is completely separate.

That is not tied to your employer.

Your IRA is a great, it's a great
tool, but it's completely different.

So for the purpose of this podcast, we're.

Talking about the the employer
sponsored four 57 plan, whether

that's Roth or traditional, we're
talking about just the four 57 here.

Anything to add, John?

Jon: No, I think that's a
really nice summary of it.

And yeah, so if you just think
of it in its most simplest forms

is we're gonna have the bucket
The bucket is the 457 plan.

That's the big that's the top number if
you will And then you have two little

branches off of that and then you can
either have the pretext or like louis

said the traditional Or you can have
the raw The Roth or the after tax.

And we'll talk a little bit about,
why you might want to choose one of

those, here in the future, but yeah,
four 57, it's kind of one or the other.

And the other thing I should mention,
because it is an employer sponsored plan.

we have listeners out here that, your
employer might not offer the Roth option.

Just just so you know, in fact west
metro listeners will will know this Well

as we've only started offering the roth
457 for the last year So this is kind of

new to us and our members and being able
to to have this opportunity But there

may be some listeners in here that are
like, okay, cool They're going to their

hr department and be like, okay, cool.

I want to do a roth 457 They're
like we don't do that here.

So it really is up to the
employer to offer that they

don't have to there's nothing

Louie: John, I want to give you some
props on that because that you're right.

That wasn't an option that we had
until just a couple of years ago.

And that was something that you
pushed hard for working in the

benefits SBT to make sure that we
got that option working with HR.

I know we had to make some.

Concessions in order to get
that totally worth it though.

I mean the Roth 457 is a wonderful
plan and we're going to talk about

why in just a minute, but thank you
for doing all the work to get us that

plan because that is a cool plan.

And I know there's a lot of guys that are
now contributing to that that love it.

Jon: Yep.

the thanks should all be given to
our HR department administration for

allowing us the opportunity to do that.

Cause ultimately they are the
employer and they, they can kind of

give the green light on that or not.

And this is also a conversation and
impetus for those of, The listeners

out here that are not affiliated with
West Metro, other union leaders and

stuff, this is something that you
could bring to your department as well.

If you don't have the Roth and
it's, you know, talking to our

folks, there's there's some
payroll adjustments and some other

administrative tasks that go with it.

but I think it's an argument
that there are a lot of places

that are offering this as well.

So if you kind of best practices,
from an employer standpoint,

retention, recruitment, all these
other things, it's just another

layer that you can have on there.

That's like, we really are giving
you guys, Best in practice is what's

available as far as, benefits.

So just wanted to highlight that.

Louie: Appreciate it.

And, and John, you mentioned, so, you
know, you might not have the Roth IRA

depending on, or I'm sorry, the Roth 457.

See, I heard, here I go.

You might not have the Roth 457 option.

You probably will have
a traditional option.

That's the more popular option.

can you talk to us a little bit
about, in addition to that option, you

generally have an option for providers.

Jon: Yes.

Yeah, so depending on where you work, and
we'll be a little bit specific here, so

we will, we will preface this with that.

This is here at West Metro.

This is what our members have the option
for is we've got two different providers.

We've got Fidelity and we've also got a
Mission Square, which used to be, it's

rebranded, it used to be ICMA and now
they've rebranded and it's Mission Square.

So those are, what is often
thought of as custodians.

So those are the people that actually
hold the money, if you will, in the plan.

so you really do have,
those two different options.

So depending on where you
work, you may just have one.

Or you may have three,
it really just depends.

So that's something that you're
going to want to drill down into

your benefits package, and reach
out to your HR departments if

you're curious or questioning.

so this is something, and honestly, we
used to have another provider, nationwide,

but because we didn't have a lot of uptake
and, and participation in that, it kind of

just, they were like, this is not worth it
because it caused them money to administer

a plan as well, the providers themselves.

So from like an accounting
standpoint and everything else,

it just didn't make sense.

So we've narrowed it down to.

two different plan providers, and
that is, Fidelity and Mission Square.

So,

Louie: And John, I gotta, I
gotta ask you this question.

We're not, just to preface
this, we're not sponsored.

We're not, we're not pushing.

We're not going to say that
we are endorsing anything.

This is not even a, what the West Metro
department podcast, this is just a, two

guys from the union having a conversation.

But I get this question a
lot and I'm sure you do too.

If you're a new guy or you're
someone who's just thinking about

opening a 457, who do you go with?

Who do you open it

Jon: you go with?

So, there's, there's definitely some
different preferences on both of those.

the biggest thing is, fidelity.

I will say they are, they have
more options and more options.

What I mean by that.

And Louie and I can get in some of
some of the discussions about what

some of your investment options are.

but really what I mean by more
investment options is they have

what's called a brokerage link.

so that is something that you
can actually get full access to

basically the whole stock market and
not just a couple of, investments

that they have, that the plan has.

Selected for you.

So that is one thing that, you know, as a
planner, something that I'm very, in favor

of is having options and opportunities
and the more diversification you can have

in that is just something that I think,
you should be, you should be mindful of.

The other thing that's kind of nice from
just a, keeping everything in house is

FPPA and Fidelity are, they're not one
in the same, but they, they FPPA uses

Fidelity as their custodian of choice
when it comes to all this other stuff.

So when you're looking through all your
statements, Louis, we were just talking

about, you know, off air beforehand,
trying to consolidate that stuff and have

it under one custodian is so much easier.

You don't have to worry
about a login accesses.

You don't have to worry about passwords.

You don't have to worry about forgetting
to submit something or tracking something.

I mean, All the research really tells you.

And if you meet with an advisor or
someone that's giving you some financial

advice, or they are managing your money,
they almost always recommend bringing

it into one house and then they can
just manage it from that aspect of it.

Cause if you've got a, if you've been
with a lot of different employers and

had different 401k plans or different
IRAs throughout your life, it can

just be, you don't want to be confused
about all those things about where are

all my accounts and the accesses to

Louie: or even like even the security
risk of having numerous logins and

numerous passwords at different places.

I mean, that is definitely.

Onerous in order to kind of
manage and track all those things.

So yeah, and I I agree with
you So I I like fidelity.

I think fidelity is a great company.

I think they're one of the like the gold
standards of financial investment houses

they're really good whether you just want
a regular taxable brokerage with them or

You want your ira there or whatever they
can do it all and like you said they have

a ton of A ton of options and because
they offer a ton of options and because

they service so many investors, their
costs are generally very competitive.

So they're, they're on par or even below
Vanguard and Schwab and some of these

other what are called discount brokers.

they're very, very competitive
with them and they're able to

provide you with really good

Jon: um,

Louie: really good value
for your investments.

Jon: and really comprehensive
service or, or just their platform.

You know, whether you're talking
about, you know, the 4 57 plan in

this case, or you have a a an IRA or
if you open up a brokerage account

or you have a 5 29 plan for you.

I mean, it's just like they really do.

Louie: They do it all.

They

Jon: of a one stop shopping.

but Louie did make a good point and,
you know, kudos to him and really what

got him involved in the benefits SPT
from West Metro is, you know, he came

in here as a new guy and was like,
Hey, this whole mission square thing,

or ICMA at that time, they were like,
dude, these costs are through the roof.

What are you guys doing here?

Like, this is not, this is criminal.

Like we shouldn't, we
shouldn't be allowing

Louie: put it in a spreadsheet
and I was like, we can't do this.

Like if I would have had these, this, my
investments put over here and ICMA at the

time, it would have been exponentially
more over the course of my career.

So that's actually what got
me into, to union service.

Anyway, I know we kind of, John
and I briefly talked about how

we got involved in the union, but
that was like the, Impetus for me.

I think I went to read a Norwood and
was like, Hey, I see something here

that I feel like we can do better
on and we can fix, how do I do it?

And he was like, let me tell
you about the benefits SPT.

Let's get you involved
at the, with union stuff.

And that just kind of naturally flowed
into me becoming more involved with

the union, because that was my way to.

Actually help make a change.

So, and, and to their credit, you know,
mission square now has, has reduced

their fees on, on a lot of funds.

And they've even brought in some Vanguard
funds for their target date retirement.

and that has made a huge difference.

So if you are with.

and then you're like, I've been
with them, my RHS is with them and

this is just where I want to stay.

That's okay.

We can, you know, you can choose
some options there that are, really

good, cheaper options for your funds
that are not going to just kind

of eat away your expense ratios.

Don't have to be off the roof
with mission square either.

So huge,

Jon: huge shout out to you.

And, and once again, that's something
from, you know, listeners outside of West

Metro and you're involved at all in the
benefits package of the organization.

This is just something
that you should look at.

and if you've got questions like,
you know, Louie and I, like, we were

obviously very passionate about this,
but if you send me something about

like, Fees specifically in your plan
providers and be like, does this seem

like this is totally outside of the realm?

Like I'll give you my honest opinion, so
we were actually able to negotiate some

lower fees, with those plan providers.

and now I would say, as far as
from a cost perspective, they're

definitely on equal playing fields.

So maybe we should talk about,
this might be a good opportunity.

So we're talking about costs.

So if a member is evaluating costs,
what, what would you tell them?

How would you tell them to go
ahead and do some research or

what are you talking about?

Costs?

Yeah,

Louie: that's a great,
that's a great idea, John.

There's when it comes to cost
for these employer sponsored

retirement plans, companies can
charge you in a couple of ways.

There's often, like a quarterly
or a monthly account service fee.

So it's an administrative fee
or an account service fee.

You'll hear it called different things.

but that can generally be a flat rate.

It could be like a 10 a
month rate or 10 a week.

quarter rate, or it could be a
percentage of your assets, often very

low percentage for good companies.

Like they'll charge a very low amount,
but it covers their overhead as it relates

to being able to administer the plan.

And then the other way, and probably the,
I would say very often the Bigger way

that companies charge fees is by expense
ratios and expense ratios are charged

on the funds that you are invested in.

So if you have a fund that charges a
1%, expense ratio, that means that.

Every year, 1 percent of your money
in that fund is collected as a fee

that you pay to the fund provider.

there There are a lot of range
of fees of expense ratios.

and so what I try to tell people when
I'm giving them, you know, suggestions

for how they're going to, invest their
money is pay attention to those expense

ratios because those can eat away.

If you have a 1 percent expense
ratio across the board, you

will end up with dramatically
less money than if you had a 0.

05 percent expense ratios.

So we haven't got to talk
about, You know, my, my favorite

child, which is index funds.

We really haven't talked
too much about that.

We probably will in a little bit,
but the, one of the beautiful things

about index funds is not just that you
get a really good return consistent

with the market, but you also pay
very little for those index funds.

Whereas if you have an actively
managed fund, now all of a sudden

you are paying somewhere like 0.

5, 0.

7, 0.

8, 1%.

So you're going to probably
Not be able to beat the market.

You're probably going to perform worse
than the index fund, but even if you

performed as good as the index fund
or a little better, those expense

ratios are going to eat into your
returns and make it so that you have

less when you eventually retire.

Jon: retire.

And that's really, and that's the
name of the game here is we're going

to try to control what we can control
and we can't control the market.

No, anyone that tells you, they can
tell you what the market's going to do.

They're selling snake oil.

Cause no one knows, no one
knows what tomorrow will bring.

so that is the, one of those things,
like when we were talking enough, The

four 57, and we're talking about costs.

And then furthermore, we'll talk
about taxes here in a little bit.

Like, these are the things that you
can control, at least based on what

the government will allow right now.

So definitely wanted to talk
a little bit about costs.

Cause that's some of those things
that kind of gets lost in translation.

So it will be very easy when you get
into your four 57 plan, you know,

whether that's here at West Metro
or any other listeners, they, there

is a certain requirement that each,
that each plan provider has to give

you a certain amount of options.

They can't just give you like one
option and be like, Take it or leave

it like there is, based on some risk
tolerance and some other rules, they,

they do need to require a certain type
of fund and a certain amount of funds.

So one of the things that
Louie specifically mentioned

is the expense ratio.

So when I think about costs,
that's generally what I, Try to

advise people of is if you're just
trying to compare apples to apples,

like that's the best comparison.

Some of these other like administrative
fees, like quite frankly, we

just can't get around those.

Like that is just what it
costs to administer the plan.

We just kind of have to eat those.

And honestly, most plan providers are
aware of administrative fees and that's

a business and they're trying to be very
competitive with the other providers.

But really when you're looking at,
at fees, look at that expense ratio.

So it's something as simple
as you can click on a fund.

And typically it'll be presented at
a certain in a certain manner It'll

typically give you like the fund
performance, you know year to date

over three years over five years And
then it will also give you something

that might be abbreviated as exp Or it
might just say expense ratio and that

will typically be a percentage So, you
know some of these depending on what

type of investment you are can be as
low as like Louis said which is 0.

01 or 0.

02 percent and they can be all the way
up to I've seen some What was the most

egregious one I saw it was like a global
real estate investment fund and it was

something like two and a half percent

Louie: through a, through
one of our four 57

Jon: No, this was this was not in one of
our And one of our options, from the West

Metro people, no, this wasn't something
else that was completely egregious.

And I'm just like, wow.

So it really, it really does make a
difference, you know, year over year.

And when you're compounding
all that stuff, so just

Louie: and a half percent, you said,

Jon: something, something
to be mindful of.

So just pay attention to that.

And really, and you should be able
to go into, if you got multiple

providers, you should be able to, have
access to the plans to see, compare

and contrast and, you know, case in
point, what is very common is something

like an S and P 500 index fund.

You know, that's very common.

Like if you read anything right now,
that's almost what everyone associates

a benchmark with right now is 500.

So if you look at one.

Plan provider, let's say it's Fidelity
and they're 02, you should also be able

to go to Mission Square and they will
also have something that's similar to

an SMP 500 and those costs should be
very close and if they're agreeing, if

they're, you know, 10, basis points apart.

Well, I'm gonna go with the, with the
provider that's got a lower cost and

really, you know, to Louie's point that
we, from West Metro's perspective, it

is basically apples and apples from
Fidelity to Mission Square on costs.

Like they really have come down

Louie: come down a lot.

Jon: So just something to be mindful

Louie: And, and, and just to kind
of add onto that, The last thing

I'll say about costs is that, I'll
just, this is to give you an example.

John brought up the S and P 500.

if a member, let's just, just,
just make a little example here.

If a member were to contribute a 10, 000
into an S and P 500 with no expense ratio,

let's just say they had no expense ratio.

It was a free S and P 500 fund, over
the course of that 40 years, at the end

of the 40 years, $10,000 a year, would
give that member about $850,000 in their

retirement account at the end of 40 years.

Okay.

And that's just based off
of historical numbers?

Yeah.

If that same member invested into a
fund that had the same performance

of the s and p 500, which as we know.

is very unlikely.

You're probably going to underperform, but
let's say it was able to match the same

returns, but they charged a 2 percent fee.

So John, you were talking about
that two and a half percent fee.

Let's just say it's a 2 percent fee.

If that member, if another member
invested in that fund, same returns, but

with a 2 percent fee, they would, they
would have lost about half or 50 percent

of their investment that they would
have with the S and P 500 fee or fund.

So basically they would go to.

About 380, 000.

Jon: so more than half, more

Louie: than half.

So you're

Jon: than half's getting,

Louie: getting eroded
because of a 2 percent fee.

So you hear 2 percent and you're
like, oh, that's, that's not that big.

Right.

It's huge.

Over time, you've eroded your
returns from about 850, 000 to about.

380, 000.

So that's why we're, that's why John and
I are so passionate about cutting, fees

and cutting expense ratios, because that's
more money in your pocket when you retire.

And that's what we want you guys to have.

Jon: I think is important for people to
understand, like those fees, they kick in

every year, whether you made money or not.

So if you lost money, they're
still collecting money, you know?

So it's not just like,
Oh, you did really good.

We're going to take a fee off of this.

They take it regardless.

So.

I think that's a really good point.

so just so, the West Metro peeps know.

so if you open up a 457 and you just
tell, you just elect how much money you

want contributed in each paycheck, the
default, if you don't actually select

an investment, the plan provider has
done is they basically take whatever

is considered like your normal
retirement age and I think for us,

I think it's 55 if i'm not mistaken.

they're gonna look at your age And
they're gonna basically do the math

backwards So if you're 30, they're
basically gonna say like, okay,

we anticipate that in 25 years.

You'll probably be retired They are going
to look at what is called a target date

retirement fund, and they're going to
match that target date with the closest,

most approximate to you turning 55.

Typically the way that target date
funds work is I've seen it different

ways, but most of the time they're
like on five year intervals.

they'll do like 2030 2035 2040 All that
year is basically saying is that is the

anticipated year in which you know, you're
gonna retire So the way that target date

funds work is and honestly for a lot
of people This is a very effective kind

of hands off like the fact that this is
the selected option I'm, really happy

about because before this happened.

Do you know what it was?

Louie: I don't, please don't tell
me it was like a, either a bond

Jon: Is a money market fund

Louie: And a

Jon: a money market fund for everyone,
if you've never really heard about

that, basically that's more or
less like what a savings account is

going to bear, like the interest.

And we know, besides the last couple
of years, 10 years ago, a savings

account offered you almost nothing.

So unfortunately we had members
that, that, Didn't really

elect an investment option.

So the default was a money market and
they put, 15 years worth of contributions

and they're four 57 and basically didn't

Louie: got nothing.

Jon: didn't gain anything.

check with your department, your plan
provider on what the default is, but

they will place you into a target date
fund that closest represents what they

think is your typical retirement age.

So once again, getting back to
the target date fund is it is

automatically by the fund design is
going to make you more conservative.

As you get closer to retirement.

So typically what that means is the
younger you are, the more time you have,

your time horizon, you're going to be
more invested in stocks, or you also might

hear it, called equities, which typically
will give you more growth long term,

but they're also more volatile just by
the nature of the risk reward premiums.

as you get closer towards retirement,
that fund automatically is going to, once

again, by design become more conservative.

So you are going to hold more safe.

Assets safer assets.

So bonds and fixed income.

If you've ever heard of something
called rebalancing, that's

basically what it's doing.

It's making you as you get closer
to retirement It's making you more

conservative because once again, if you
don't have time to make up if you lost a

bunch of money they don't want you to all
of a sudden be behind the eight ball and

be like, oh man I was super aggressive.

I was 100 in stocks and now I'm a year
away from retirement and i've lost 40

And we've seen that happen Saw that
happen in 2007 2008 around here and and

our folks weren't the only people in
there They were just super aggressive.

They didn't really take that
whole, risk tolerance that whole,

risk reward thing And so I love
the target date fund for that.

It by design does that

Louie: Yeah.

So, yeah, John, add onto that a little
bit, as you get closer to retirement,

that fund by itself, without you
doing anything, will sell off your

stock funds, your stock index funds,
and it'll buy more bond funds.

And that kind of smooths out your
ride and it makes it less volatile.

When there's ups and downs in the market.

So by the time you retire, if you, you
know, if you retire and if you have

a 2030 fund and you retire in 2030,
you're probably going to hold somewhere

around 60 percent of that target date
fund will be in stocks or stock funds.

And the other 40 percent
will be in bond funds.

I think that's what it shoots for
when you retire good funds though, for

people that are hands off and like,
look, I want to set it and forget it.

And I don't want to have to do anything.

It's a great option now.

It's they're conservative versus what
a lot of people recommend a lot of like

CFPs would recommend at that point so
you're You're not going to have the same

return as you would if you had just an
s& p 500 index fund or a total stock

market Index fund but that's okay like
that's that's the benefit that you get

from it is not that you're getting the
same return as an S& P 500 index fund.

It's that you don't have to keep
playing with it and fiddling with it.

Whereas if you have an S& P 500 fund,
yeah, you're getting a great return.

You're paying rock bottom
fees, awesome things.

Those are both things that I'm very
passionate about, as you know, but what

that means is that as I get closer to
retirement, I got to go in there and

manually sell off some of those, some of
that index fund and buy more bond funds

so that I'm not a year out of retirement
and And totally 100 percent invested in

the S& P 500 and then the stock market
goes down by 30 percent and I'm like,

ooh, I don't know if I could retire now.

So,

Jon: definitely way more work from
the, the members aspect of it, from the

management of that, and kind of just, you
know, looking through that whole thing.

So, and the other, the only other plug
I will make on the, on the target date.

And I, I hope with more, competition,
and just the awareness of, of the target

date funds as costs go down, they are
more expensive, you know, typically a lot

of the, the, target date funds, you'll
find them at, Like 60 basis points.

So that's like 0.

6%, which is, considerably more
expensive than a lot of the index funds.

So that's my other thing is if you're
paying that kind for a long time, that

can add up in, in some of the fees.

when you're talking about
investment selection though,

this is something we can't.

We can't give any advice on from a
podcast standpoint because it is so

individualistic i'm more than happy to
share what I do louie same thing, but

this is for our circumstances and our
circumstances are unique to ourselves

so we're not going to give you any
more as far as investment selections.

It's just being mindful of costs Kind
of what a fund is what an index fund

is what a bond fund is what a target
date fund is so we're gonna Spend some

more time in another episode, because
I'm sure there's a lot of questions

that people will get from this, we just
wanted to talk about what a lot of the

common options are, whether it's here
at West Metro or, other organizations,

you're going to have some options.

Louie: Yep.

Jon: Anything more?

I think that's pretty good.

All right.

So let's talk about, how much the, good
old IRS is going to let us contribute to

these, golden ticket plans, if you will.

so starting, and this is updated,
the IRS just released their guidance.

so you can contribute up to, 23, 000.

500 in 2025.

there is something that is
called a catch up contribution.

So this is if you are, 50 years or
older, you can add an additional 7, 500.

So what is that?

So that would be 31, 000.

Basically you could contribute,
if you're over the age of, 50.

So that's something that's a lot of money.

Louie: Yeah, that's a great
amount of investment every year

if you were able to do that.

Jon: Yep.

That is a tremendous amount of money.

So that's something that, if you have, the
ability, to contribute, like, you know,

we've got some people that are brand new
and they are maxing out their four 57s.

I don't know, honestly, I don't
know how they're doing it.

If they're living in a van down
by the river, or if they're

just very, frugal in certain, in

some circumstances, and they're,
you know, maybe working a bunch of

overtime or whatever, and they're just
funneling all this money in there.

So hats off

Louie: Can you imagine if, if
all the firefighters just started

maxing out of, 457 on day one.

Like that is nuts.

Jon: right?

That is super incredible.

So we just wanted to highlight what some
of the contribution Limits are and I

will also say that there is something
new This is something that the secure 2.

0 took effect.

So starting next year So in 2025,
they are going to allow what are

called super Catch up limits.

so what that is going to be for the,
457 plan, that's going to be 11, 250.

So if you, are, between the ages of
60 and 63, this is something that you

could potentially be eligible for.

I will preface it.

for West Metro, this will
not be in effect for 2025.

I talked with our HR department.

they're still working through some,
some design changes with the plan.

and they just don't have the
availability to offer this

for our members for next year.

Once again, this is a, a, a.

an employee sponsored plan.

So they have, certain rights as far
as what they're going to, what they're

going to allow and what they're not,
I know they are planning on this

for 2026, this will be something.

So if you're, one of the, salty members
out there, we'll just call them.

Right.

And you're between the ages of
60 and 63, there is an additional

special ketchup contribution.

but that won't take effect for West
Metro members, for at least another year,

but, Once again, if you're listening
out there affiliated with a different

agency, this might be something that
you have the option for for 2025.

That's just a new rule change, but
just wanted to highlight that because

that is something that is new.

Yeah,

Louie: and and 20, you
know, 23, 500 is Plenty.

I mean, you can, put a lot of
money in there for a lot of people.

And then we can talk about, you
know, IRA contributions if you

needed to save more, but just know
that if you're able to max out your.

You're 4 57, especially you were saying
John, younger guys maxing it out.

I just did a calculation real quick.

If you were to max it out, if you put it
all in a total stock market index fund.

Mm-Hmm.

since day one when you worked
here, you worked here for 30 years,

contributing $23,500, you would have
$2.2 million in that retirement account.

Yeah.

At the end when you retired,
like wow, that would be a sweet

Jon: top of the pension

Louie: Yeah.

Yeah.

That's the cherry on the pension cake.

And that's, I mean, that's enough to
withdraw like 88, 000 a year without

ever outliving that pile of money.

So, if you're motivated to be
a multi millionaire and have 2.

2 million in investments,
start putting 23, 500 into

your 457 and that's, that's it.

Jon: and we know, realistically, for
the majority of our, our members,

that's just not financially going to
be feasible, and we don't, You know,

that's just one of those things.

If you do have the availability to it,
maybe you're, you have a spouse and

you have another income or whatever
your circumstances are, it's just a

really good idea if you can fund that.

So basically we're, we're just advocating
for funding that as much as, as you

can, without obviously sacrificing
any other, you know, security issues.

and, you're, you're not going
to be disappointed in that.

Louie: Yeah,

Jon: The, and the last thing I will
mention, and I don't see it on our,

our show notes here is the, so there
is something, within the four 57

plan that is very unique, and that
is a, basically a special provision,

the three year special provision.

So basically when you are three
years from retirement, the plan

will allow you to basically do.

Double the amount that you
could put in in each year.

So for right now, if it's for 2025,
but that's going to be 23, 500, you

could actually put in, what is that?

47, 000.

You could put into that plan as
just a special ketchup contribution.

it's something that's very
unique to the four 57 plan.

It's very unique.

to public safety, providers as well.

So even if you're a person that
works in another four 57 plan,

like a nonprofit, this might not be
something that's available to you.

So this is something
specifically to firefighters.

and the reason that I bring this up is,
so when we talked about the difference

between, fidelity and mission square
for West metro providers, there is

a difference in their interpretation
of how they're going to apply this.

So, Fidelity requires you to at least
be the age of 50 before you put in for

Louie: what they consider the
normal retirement age for a

Jon: Yep.

So, yep.

And it's basically, if you're
within three years of that,

they're basically saying it's 50.

If you actually look at the IRS
regulations, it is pretty clear on this

and it says that you must be at least
the age of 40 and have at least 15 years

of service in order to qualify for this.

So mission square will let you do that.

Mission square will let you be 40 and as
long as you got 15 years of service So

if you're hired at 25, you could actually
put in for the special provision This

is something that has to be conducted
through your HR department And the

reason is is they have to go back and
make sure that you actually have room

available for that What I mean by that

Louie: have to have under
contributed in previous years

in order to make that additional

Jon: you're one of our members that right
out of the gates, you funded your four

57 every year, and now you get to this
point to the max, you won't qualify for

this because you don't have any unused

Louie: boohoo boohoo feel so bad

Jon: is a catch all.

And most of our members that
will not apply to, right.

We understand that people.

From the, from the first day, very
few can go ahead and contribute that

to the max, but it is a very unique
provision and it's something that

is very specific to firefighters.

and we just wanted to make a full
awareness for not only our members, but

other firefighters listening out here.

that is something that.

Potentially you could have access to,
so get ahold of, your HR department.

Who's ever, orchestrating your
benefits and ask them about that.

But cause you are going to need their

Louie: True.

And if you do it on a pre tax
basis, that's going to dramatically

lower your tax bill, for For those
contributions, which is awesome.

and

Jon: a tremendous amount.

Louie: Yeah.

And speaking of that, maybe now that's
a good segue to talk about pre tax and

post tax or traditional versus Roth.

So, John, we just mentioned
that in our four 57, our options

include both the traditional or
the pre tax for 57, as well as the.

post tax or Roth 457 option.

Can you tell us a little bit about the pre
tax and post tax ideas of contribution?

Yep.

I would,

Jon: I would love to so kind of like
Louie already alluded to so we'll start

with the traditional of their pretext
That's probably what most people are

the most familiar with So basically
the contributions that you're making in

that year they go in tax free, you don't
pay tax, taxes on those contributions.

They then go into your 457 account.

And then depending on whatever
investment selection you have,

hopefully there's some growth with that.

And that growth, will continue to grow tax
deferred, until you withdraw those Those

distributions so one of the things so that
is the traditional Pre tax 457 everyone.

I think has a pretty good idea on that
What's really nice about that is you're

saving taxes on the front end because
you're reducing your taxable income so

you're going to pay less taxes because
your taxable income is going to be lower

which is very advantageous and especially
if you're in a higher tax bracket that

can save you a significant amount of money
up front so I think people definitely

in the 401ks and everything else.

I think people really understand that Yeah
what exactly the tax deferred growth is.

So money comes in, so you're
not paying taxes on that.

It's going to grow tax deferred.

So you're not paying taxes
on any dividends and any

earnings, anything like that.

But when you do take a distribution, so
what is unique about the four 57, which is

a different than like a 401k plan is you
can basically take that and Distribution

when you separate from the fire
department, which is very unique, right?

the really cool thing about the four 57
that makes it a little bit more unique

and really tailored to firefighters is
that you can take distributions before

the typical age of 59 and a half.

So basically the way the four 57
is structured, at least from the

pre tax setting is you can take it.

Basically whenever you separate from
service So if you're 50 years old, you

can go ahead and start taking those
pre taxed distributions And then when

it comes out, basically you're gonna
be taxed on everything that comes in

Yeah, so both the contributions and
the earnings because you've never

paid tax on either of those so It's
really easy when you think about it.

It's, you know, if you pay, if you take
out 20, 000, you're going to be pet

taxed on all 20, 000 of those dollars
at whatever your marginal tax rate is.

So that's how the distributions
work in the taxation works from a

pre tax or a traditional four 57.

So now we have the cousin of the
traditional and that, or maybe

the, maybe not the cousin, maybe
the, the uncle Rico, I don't know.

I was thinking something suave,
something that's cool is the Roth.

So once again, Roth 457, anything
that has Roth before it, whether it's

an IRA, it doesn't really matter.

You can add whatever alphabet
soup you want after it.

Roth basically just means that you're
going to pay taxes on it right now.

So whatever your marginal tax
rate is, you're going to pay that,

but then it's going to have the
opportunity to grow tax free until

you take out those distributions.

You pay taxes now.

Paytax is now tax free growth and
tax free withdrawals in retirement.

Yes.

So, but like anything, if it sounds
too good to be true, it might.

So one of the things, and I don't think
this is once again, common knowledge.

And for a lot of our members
too, they've just had access

to the Roth 457 for a year.

So this is just some good, the
more, you know, statements.

So the way in order for it to be what
is considered a qualified distribution,

and that is how you get to those tax
free withdrawals is you have to be

59 and a half years and you have to
have a Roth opened for five years.

Yes.

So you have to have both of those
two qualifications in order to

have your distributions tax free.

Once again, though, there's some more
nuances to this, and this is where,

once again, if you start getting
involved in this and you just want

some more clarification or guidance,
this is really where you do want to

seek some tax advice, whether it's.

Work with a tax professional to really
see what some of these implications

are, just generally speaking.

But the way that the Roth works
is distributions are always

taken out in a certain order.

So it always starts with
your contributions first.

And then if you made a conversion,
And then if you didn't make a

conversion, then it goes to earnings.

So it's going to go contributions,
then conversions, then earnings.

That's how the money always comes out.

So if you were someone,
let's just take an example.

You're that 20 year old firefighter.

That's like, Oh yeah, I
think I want to do the Roth.

I'm going to open up a Roth for
57 and you do that for 30 years.

You never change.

You don't go to a traditional, you
just stick with a Roth and you've made

the 30 years worth of contributions,
any money that you take out, even

before the age of 59 and a half, you're
going to just be taking contributions

out and you won't be taxed on that
because you've already paid the tax.

You're not taking your earnings.

You're not taking the earnings yet.

You're just taking your contribution.

You're taking your contributions.

So that is something that is kind
of unique and it's a subtlety,

but it's definitely something that
you don't want to violate those.

You don't want to violate those rules.

So it's just something to be aware of.

So, well, you know, If you're, if you're
on the fence, you know, this is something

that Louie and I get asked a lot.

I mean, this is probably one of the
most common questions between like,

Hey, I think everyone knows about
the four 57 at least, but now they're

like, they have this option and
they're like, well, what do you think?

Which one do I do?

Yeah.

And that one, there's a lot of
different schools of thought.

Yeah.

And this is once again,
a very personal decision.

So, you know, one of the things,
and some of this just depends on

what underlying tax policy looks
like moving forward in the future.

Yeah.

Most of us.

Probably like I'm under the pretenses
is like taxes right now, even though

you feel like they're high, they
are basically at historical lows.

Yeah.

They've never been really
lower for the broad.

Spectrum of the population.

Yeah, they just really haven't.

Yeah If you look at just some of the
spending and some of the other things

that's happening with government never
been higher It's never been higher so

at some point we feel like there is
going to be some type of equalization

there and Most people I think would
argue that at some point taxes.

They can't go they you know They can't
go You would think that they can't go

lower, but realistically, I feel this
is my own personal belief that if I'm,

if I'm advising someone 15 or 20 years
down the road, I feel like they're

going to be a higher tax bracket.

I just do.

I feel like they can, you know, over a
given amount of time they can only go up.

So if you're one of those people
that are, you know, younger and

you're definitely in a lower income,
the Roth to me is a no brainer.

I totally agree with you, John.

I feel like, you know, we, we don't know.

I, the traditional advice that a
lot of financial advisors give is,

you know, when you retire, you're
going to be in a lower tax bracket.

So defer your taxes.

Basically what they're saying is
contribute to a traditional 457

account now to get the tax break.

Now that you're making money.

And then when you retire,
you will, Have less money.

You'll be in a lower tax bracket.

So pay the taxes at the
income rates that are lower.

Well, that works great.

If you feel like, you know, what those
tax brackets are going to be, but like you

said, we have record levels of spending.

We have really low tax rates already.

And I just, I'm not confident enough
in the government and the tax rates

that I'm willing to put everything in
pre tax traditional four 50 sevens.

Now I'd rather pay the taxes on the.

Right now that I know the rates and
know that when I retire I am that that's

all mine Everything in that account
is mine Now an exception to that would

be you know, if if you're married to
I don't know a doctor Or a dentist.

Let's say you're a firefighter
and you're doing real well.

You married a, I'll kick your coverage.

You married a PA maybe,
or a doctor or a dentist.

Oh yeah.

I know a couple of those.

And they're made,
they're just crushing it.

They're making a lot of money.

Well then for you, it very well is
probably going to be the case that

when you retire, you're going to be in
a lower tax bracket than you are now.

So in that case, maybe it does make sense
to, Contribute to a traditional 457 to

get the tax break now But if you're uh,
if you're a you know, single firefighter

or your spouse doesn't make a ton of
money Then boy paying that tax now and

having tax free growth for the rest of
your career Is a very attractive option.

And then I don't tell when I
always get asked this question a

lot, John, you probably do too.

One thing that I do tell people just
to try to illustrate this is let's say

you have two firefighters, firefighter
a and firefighter B firefighter a

has contributed this 10, 000 just
like firefighter B into a four 57.

The only difference is.

One of them contributes on a pre
tax basis on a traditional basis.

And the other contributes on a four 57.

And let's say the returns
are exactly the same.

So at the end of their career, they
have, they both have a million dollars.

Firefighter a has a million dollars
in a traditional four 57 and

firefighter B has a million dollars
in a Roth four 57 who has more money.

The Roth, the other, because he's not
paying or she's not paying taxes on those.

Yep.

He or she has already
paid their taxes on that.

So at the end of the day, the
two accounts are not the same.

The money, even if the amounts are the
same, the money in the Roth 457 is more

because the government doesn't get.

Any more of it.

You've already paid your taxes.

I just find that appealing.

I find that good.

And we can get into the weeds.

We're not going to, but we could
get into the weeds about tax

efficiency and where else you should
put that money and paying taxes.

Now, I just like to tell people,
Hey, you know what you're

paying right now with the Roth.

It's a great option.

I love her.

I love Roths.

I, I love Roth four 50
sevens and Roth IRAs.

So I always encourage people
that that's, that should be the

first one that they look at.

Yep.

And I think that's a pretty
sage and sound advice.

Um, and hopefully what I'm hoping in
the future, um, for, at least for West

Metro and some of the other listeners
might already have this option is I'm

hoping in the future that we will kind
of be able to split the difference.

So where you'll be able to, you know,
Contribute half to a Roth and then

half to a traditional and play them
against each other and be like, I'm

going to have options at the end
where I'm going to have half of my

money is going to be traditional.

The other half is going to be Roth,
and then I'm going to have a way, a lot

of flexibility, a lot of flexibility.

And that's something I think in the
future, once again, speaking for

West Metro, I think we're going to be
able to, once they get some stuff set

up with payroll and some accounting
and just some of the tracking.

Once again, this is
sponsored by the employer.

So the onerous is on them to, to get this
set up and it's a, it's a heavy lift.

Yeah.

But we are working towards that.

So, and if you're not with West Metro
check with your department, because

a lot of departments already allow
you to split your contribution up.

Ours is like a record keeping issue
and, and a bookkeeping issue right now.

So that's why we're having the issue,
but we, that's totally something

that we can figure out in the future.

We're looking at that in the future.

Yep.

And then John, just, just Point that I
want to make between traditional and 457,

just to highlight a difference is with
the traditional 457 account, you have,

at some point you have to take what's
called a required minimum distribution.

So at age 73, you will be forced
to withdraw a certain percentage

of your account balance.

And the government calls that a
required minimum distribution.

There's a formula that you can find
an IRS formula that kind of Tells

you how much you have to take, but
they forced you to take it because

uncle Sam wants his, his money.

He's, he's, he's been letting
you deferred it long enough.

It's been differing for 50 years.

Exactly.

And now he's like, all right, you
gotta, you gotta pay uncle Sam.

He wants his due.

So you are forced to take that money
and pay taxes on it, which boy, that

sounds as when, when I was younger,
I was like, that's not a big deal.

Who cares?

You're 73 years old.

You're you're on the road.

Yeah.

But I know that there are some people
who are in retirement that are 73.

My father in law is one of them who
it now has like this tax headache

associated with that required minimum
distribution on the opposite end of that.

If you have your money in
a Roth for 57, there are no

required minimum distribution.

Yeah, that's a new update.

So you can leave that money in there.

As long as you want and
you don't have to take it.

So if you're 78 and you're like, I want,
I don't want this money to be taken out.

I don't want to be forced to withdraw it.

I just want to keep it there.

You can keep it there.

And the reason why is because
uncle Sam already got their money.

They're not entitled to
anything that you withdraw.

So they have no incentive to
force you to withdraw your money.

Where I'm going with that is It turns
out that Roth accounts, whether it's

a Roth IRA or a Roth 457 or a Roth
401k are much, much, much, much better

to inherit than traditional accounts.

There's a lot of rules and we're not
going to go into it, but when you, when

you inherit a 401k or an IRA account
on a traditional basis, there's a lot

of tax headache that goes into that.

And there's different things with
tax basis and things like that.

But with Roth, it's clean.

It basically is just, it's an account that
Is super easy to inherit that doesn't have

all the tax headaches that the traditional
accounts have So if you're one of those

people who feel like you've been doing
well and you've saved a lot and you want

to make it as easy and as Inexpensive from
a tax bill perspective on your children

or your heirs Roths are great accounts
for that too, because they don't have

those required minimum distribution.

And because of a few other tax
advantages that the traditional

accounts just don't quite have.

Yeah, no, I think that's a really
solid from like a legacy standpoint,

um, planning aspect of it.

Like, what do you want to leave your,
your kids or your heirs or whatever?

And they're definitely
going to inherit more money.

That's going to be available to them
without a significant tax burden that

they're going to end up paying on that.

So that's a, that's a really good
point, Louie regarding, regarding that.

And some, sometimes it's often get lost.

So, you know, once again, I think
you guys see, we're trying to keep

all biases out of the, out of.

Uh, the conversation, but we all
have our kind of our own biases.

And this is definitely one that's,
you know, uh, general advice,

you know, younger people, lower
tax bracket Roth all day long.

Yep.

If you're one of those people that are
in a high tax bracket, we're talking

the 32, 35, 37%, you know, seek, seek
some tax advice on what's the best

way to mitigate your tax or long term.

And the other, the thing that I would
say is probably not appropriate is for

the people that are the very end of their
career and they don't have a Roth account.

Okay.

Is, you know, once again, the really
benefit of that Roth is that long

term growth and being able to accrue
all of those things, you know, tax,

tax deferred, and then ultimately you
take out the distributions tax free,

you know, if you're in your last year
or two, you know, I don't want to say

it's too late, but you're not going to
have the advantage of that person that

opened up the account 25 years ago,
unless you're just planning on not to.

Not touching that account for 30 years,
but just something to be mindful of.

Cause we do have a lot of
members in that circumstance.

They're like, Oh man, this sounds
really good, but just remember the

seasoning period, that five year rule,
and then also 59 and a half in order

to have a qualified distribution,
which basically means you can take.

All of that money out
and the Roth tax free.

Yeah.

So hopefully we've explained that enough.

There's some nuances with
that, but a little complicated.

And the truth is John and I aren't going
to beat you up if you are a pre tax

guy, a traditional 457 guy or a Roth.

Yeah.

We just want you to contribute to it.

Like honestly, like we can split
hairs and start talking about what

is more tax advantageous or what's
going to be better in the long run.

But the truth is, It doesn't matter at
the end of the day what you contribute to.

If you start putting money into your
four 57, you are going to be, you're

going to have a much better retirement.

You're going to have much more money
in retirement, and it's going to be

much easier for you to supplement
your Uh, pension in retirement, which

brings me to kind of, you know, the
meat and potatoes of why we decided

we wanted to do this episode is John.

I'm sure you've been asked this.

I know I've been asked this, and I know
there's a lot of people thinking it.

Well, why, why do I really need a
supplemental retirement account?

I have a pension.

Like we, we were, we're told that
we have this defined benefit pension

and it's going to make, it's going
to be there when we're retired.

And I put so much money, every
paycheck into that retirement account.

Well, why do I need a pension?

this 457.

And I'd like to get your thoughts, but
I, you know, I, I try to tell people is

it's important to know that the, that the
pension is not truly inflation adjusted.

And what I mean by that is in a year,
when the, when the inflation rate

is 7%, you are not going to get a
7 percent increase on your pension.

There's just, there's
not the money for that.

And to make sure that the pension
is a viable in the future,

They will not give you that.

They might give you 0.

3%, which is a huge hit to your,
to your pension, pension amount

to the power of your pension.

And we'll discover the
pension in a later episode.

And that's probably going to be
in the next one or two episodes

that we'll talk about it.

And it's still a great thing.

The pension is wonderful.

But the point is, there's not
cost of living adjustments

that keep up with inflation.

So if you want to keep up with inflation
and if you want to be able to buy to have

the same purchasing power in 25 years
as you have the day you retire, you need

to have something else other than the
pension to help supplement your income.

And the best tool for that for,
for us firefighters is the four 57.

It has a high contribution limit.

There's no income limits to it.

You can do it on a pre tax or a
post tax basis and it will make

sure that you can cover the gap
in funding between your pension.

and what you need to spend.

So as simply put as possible,
this makes sure that you can give

yourself a cost of living adjustment
and a comfortable retirement.

In addition to the pension, the
pension will get you a lot of the

way there, maybe, maybe 80 percent
of the way there, or 75 percent of

the way there or something like that.

But don't, you know, don't end your
drive at the, at the 20 yard line, right?

Don't end it in the red zone.

This, This will make sure
you get into the end zone.

If you have that four 57 that you
can withdraw from in retirement.

So I think that's why John and I
are super passionate about him.

And that's why we think everyone
should contribute to a four 57.

Yeah, you're really, you're, you
know, by doing that, you're taking

matters into your own hands and kind
of taking some accountability for that.

And yeah, so.

You know, when we talk about the pension,
we're talking about specifically for

Louie and I and West Metro members and
people in Colorado, it's the FPPA pension,

fire, police, pension association.

And there's been a lot of dialogue.

I actually sit on a committee right
now in which we're reporting back to

the Colorado professional firefighter,
CPFF on specifically this topic,

because they are a lot of retirees
that are frustrated that they're not

getting cost of living adjustments.

Yeah.

And if you look at the plan documents,
there's nowhere in there that it

basically says that colas are guaranteed.

So cost of living adjustments,
colas are not guaranteed.

It's basically ad hoc.

It's up to the board based on investment
returns, based on payouts, based on

accurate actuarials, all sorts of things.

So, you know, the, the pension, and we'll
talk about this more, cause it really

does deserve a full episode to get into
kind of the granular details of the

pension, but really right now is they're
taking a formula where they basically

The inflation adjustment, the CPI, they,
they put a certain formula with that.

And depending on how the plan is doing
the funding status of the plan, there

may be the opportunity for an individual
check, basically they call it a 13th

check that gets distributed in October.

So that is supposed to make up for
some of the inflationary issues

or challenges that we're having,
but that's not guaranteed either.

Cause that's based on inflation
for one CPI, but it's also

based on fund performance.

So, and it's also important to know that
it's not base building so that that check

is paid out, but it's not compounding.

Exactly.

So even though inflation was 7%,
those prices stay 7 percent higher

than they were the year before.

And then they raise again the next year.

Whereas, Your you get that one
time payout, but then your pension

goes back to what it was before.

So, so that's a very good point.

And, and I mean, and if you can't tell
by now in the podcast, Louie and I are

Pretty fiscally conservative on a lot of
these things and we always kind of like

to take the worst case scenario, right?

Yeah, and and that's how we
always address this and how

we talk to members about this.

It's I want to have control
of my financial future.

This is one of the ways in
which you can pull those levers.

You can do it with a four 57, which
Louie and I are huge fan of, you

know, there's now the drop account.

So that is potentially when you enter
retirement, that's something that you

could also use to help supplement.

So we'll talk a lot more about
that in a future episode because

that deserves its own attention.

But really, yeah.

As far as our members are concerned
and our listeners, you know, from

Louie's and I standpoint, I do not
look at the pension as any form

of a cost of living adjustment.

I just don't.

And if there is money at the end
of the day, they pass legislation,

whatever that looks like, great.

That's just another windfall,
but I'm not planning on that.

I'm going to, I'm, I'm thinking
like, nope, I'm not going to

get any type of adjustment.

And I think that's a,
that's a wise way to do it.

That's how I look at it too, which
what that means, John, is that.

Let's assume that that inflation is
two and a half percent a year Which

is I think what the fed generally
tries to target somewhere around there

That would mean that in 25 years The
purchasing power is cut in half, right?

The purchasing power of a dollar is cut in
half So the year that you retire 25 years

from then your pension will be worth half
of what if what it is The day you retire.

So if you retire with a 50, 000 pension
in 25 years, you will only have a 25, 000

pension in order to purchasing purchasing
power wise, in order to make up for that.

You need to have something else.

That's that, and that's why
John and I are hopping on it.

That's why we thought like this has to
be one of the big episodes, because of

the sooner we can get people to put into
a four 57 and contribute, the better

off they're going to be in retirement.

So we told you we're passionate about
getting you out when you want to get

out and retire when you want to retire.

We can't do that for you unless you
start putting money into a four 57.

And like John said, there's
a couple other ways, but.

Man, you have so much flexibility
to start contributing to a 457 now.

You definitely do.

And there's so many unplanned
things that might come on in

your life and you're just never.

You know kind of the louise part when
he started out this conversation I've

never once heard anyone say that they
wish They hadn't contributed to their 457

in any capacity and it's always always
more to the to the liking of I just

wish I had More I wish I had more time.

I wish I could would have contributed
more when I was younger That is

the overarching thing always.

Yeah, very good.

Very good talks And it's just really
hard to think about when you're really

thinking 20 25 years in the future It's
just really tough mentally for us to

comprehend like what inflation does what
it's going to look like and it just does

I mean any any research studies you talk
about people do just not do not appreciate

just how much you know compounding
over time that makes a huge effect.

So, you know, and really
good points on that.

So we've kind of talked about what the
four 57 is, the different buckets, if

you will, the different taxations of the
plans, different investment selections

that you might have within your plan.

Talked about the importance of
keeping up with cost of living

adjustments and using the four 57.

Is there anything else potentially that.

Firefighters have as an advantage for
their 457 or where or why they might want

to contribute Beyond just to those and
really it's kind of a rhetorical question

but this is something that I put in in
our little document and something that

I wanted to bring up because I think a
lot of retirees might know about this,

but there's also some that might not.

There are some additional tax benefits to
the 457, specifically the traditional or

the pre tax 457, if you use it for health
care premiums or long term care premiums.

So this has been something
that's been in place.

I think when I did the
research, it's been since 2006.

There's something called the HELPS.

Act.

It stands for health care enhancement
for local public safety retirees.

So this has been something that's
been enacted, uh, you know, since

2000, actually 2007, I think is when
it went into place, but basically it

allows you to use up to 3, 000 as a
retiree to use for your health care

premiums or long term health care.

Care premiums.

All right.

And that's, so it's not, it's not
meant to be used for like qualified

expenses, like co pays and medications.

It is specifically for premiums,
which pretty much everyone that

I know of is going to have to do.

We're all going to have them.

Yeah.

If you retire before Medicare
age, you're going to be paying out

some type of healthcare premium.

And it's really nice because
it's 3, 000 every year.

That you can use towards paying for those
premiums, which is a really nice thing.

And what's nice is starting president
Biden signed this and I think

it was 2022 as part of secure 2.

0 is before it was kind of a,
my understanding is a kind of

an administrative nightmare.

So you basically had to
go to your plan provider.

They then had to send it to the
insurance company for reimbursement.

Like that's how that how all
got orchestrated through.

So there was a lot of record
keeping and just, it wasn't,

the ease of use wasn't there.

So we got some lobbyists behind
us and some action groups

behind us to advocate for this.

And they changed it with a secure 2.

0 is now you as a member can
basically get those reimbursements.

So you don't have to go
through the plan provider.

It's basically an election
that you make on your tax form.

So there's a lot more to come with that.

But if, if, if you find yourself.

As a retiree or nearing retirement right
now, just something to be mindful of is

that because of this helps act, you can
use up to 3, 000 per year to be able to

use for healthcare premiums or long term
healthcare insurance, either one of those.

So this is something that you would,
this is something that you'd want

to use your traditional for though.

Do not use your Roth for this one.

Use your traditional because basically.

You're not going to pay tax on that.

It's a, it's a qualified
subsidy, if you will, a credit

that you can use towards that.

So just something that I wanted to
put that out there once again, when

I've been researching some of these
things, there is a level of frustration.

So this is another one of those things
that is not indexed for inflation.

So this has been in place since 2007,
and it's been 3, 000 now we're in 2025.

Once again, I did the fast math on that.

Once again, if you're keeping up with
the inflation, it should be like 4, 700.

Much like what we talked about on
the last episode with the dependent

care and that being stuck at 5, 000.

And it really should be like 15, 000.

So this is something that, you know, I
wanted to give a shout out to our own

Senator from Colorado, Senator Bennett.

Sponsored a bill a couple years ago.

I don't think it's really gotten anywhere,
but basically he is trying to get this

helps act inflation adjusted for one.

So you'd be able to use that 3,
000, but now adjusted for inflation.

It's probably going to
be closer to like 4, 700.

We'll see what happens with that and
see if there's, if there's anything that

comes of that, but just know that right
now, though, the current legislation,

you are able to use 3, 000 out of your
four 57 monies to be in retirement.

To be used for health care premiums
and or long term health care insurance.

So just something I thought
was super important.

Cool.

Yeah Thanks for that.

Yep So once again when Louie and I are
trying to think about topics and stuff, we

want it to be applicable to all age groups
Diversification whether it's brand new

or you're retired and you're listening to
this Some shout out to any, any retirees.

You're living the good life, hopefully.

And really just everywhere in between.

So just wanted to bring that
to your, your guys attention.

All right.

That's kind of a long episode.

Yeah.

Talked about a lot of stuff.

We did it.

We nailed it.

We got through it.

We only had a timeout once on
our little recording device.

But really, hopefully this just helps
give some clarity, some guidance,

maybe just raise some awareness.

Yeah.

All of these other things are the missions
and the goals here at the fiscal firehouse

and, and providing firefighters with
creditable information first and foremost.

Right?

But just, you know, just raising
awareness and, and planting that seed.

And it's really up to you guys on, on
if you follow through with it or not.

But I, the last thing I want to do
is have, but follow through with

it, but, but follow through with
that through your future self.

Well, thank you tremendously.

And your family and people
that rely on you or, yeah,

they're all going to thank you.

That member that's getting ready
to retire next year and taking his

family on the road and going to spend
five years going to all sorts of cool

places, you know, take it from them.

Oh, man.

It's an amazing opportunity.

Yeah.

So don't waste it.

So for those of you that have been
listening on 2x speed and have been

shoveling snow and doing other stuff,
as you're listening to this and

you've glossed over some of the things
that we talked about, some of the

details, just to recap, 457, awesome.

Doesn't matter if it's pre tax
or post tax, they're awesome.

Contribute to one, max it out.

That'll give you a cost of living
adjustment when you retire, and

it'll help get you out of here.

When you want to get out of
here, they're awesome accounts.

They have some benefits that 401ks don't.

And there's not a good reason
to not contribute to a 457, man.

Like John said earlier, no
one else, no one has left.

I've never heard a retiree be
like, man, really wish that I.

Didn't put that money in a four 57.

Every, the only thing we hear is
I wish I would have saved more

in a four 57 or man, I'm so glad
that I had money in my four 57.

That makes a huge difference.

So yeah, there's, there's,
there's no tricks.

It's just solid contribute
contributions and solid investing.

Yeah.

There's no replacement for just.

Doing the work, you know, just putting in
the money, paycheck over paycheck, year

over year, that slow methodical snails
or turtles pace and 25, 30 years, you

hopefully will be buying Louie and I an
adult beverage and saying, Hey, thanks

for, thanks for the heads up on that one.

That one, this rounds on me, so to speak.

So really do appreciate you guys.

And one of these things we are
trying to grow the podcast, you

know, just when I talked to other
members outside of West Metro.

Their members have the same
questions our our people do.

We want to share this.

This should not, we don't have a
patent on any of this information.

We want this available to everyone.

Hopefully we have a manner in which
this is, uh, you know, receivable

from our members and it's digestible
and we're always working to improve.

So if you guys got feedback for
us, you know, where to get to us,

how to reach us, but I, you know,
we're always working to improve.

Leave us a review.

I never thought I'd be in a place
where you leave us a review, smash that

subscribe button, you know, really do
though, we are trying to tailor this

to a broader audience and we really do
want members, within the Denver Metro

region, but outside of there as well.

So much of this is
applicable and is important.

We want to be the torch bearers for
sound financial decision making and

really for you, for everyone out there
to have a quality of life and retirement

in which you can enjoy all the things
that you have worked really hard for.

And you deserve.

So without further ado,
we'll leave it to next week.

Who does Michigan play this week?

Anyone?

Who cares?

Who cares, dude?

Their season's over.

We got next season.

Next season.

All right.

Signing off from the Fiscal Firehouse.

Everyone have a wonderful day.

Be safe out there and we'll
be talking to you soon.

See you guys.

The Fiscal Firehouse Podcast is
a podcast curated specifically

for local 1309 members.

This podcast is for informational
and educational purposes only,

and should not be construed as
professional financial advice.

Should you need professional
advice, consult a licensed

financial advisor or tax advisor.

The opinions of John Beatty, Louie
Barela, and their castmates are

solely their own, and don't reflect
that of West Metro Fire Rescue.