In your case then besides the credit risk issue there is the lack of portability issue to - you can't roll-over non-government 457b accounts into something more sensible when you leave. Unless you have access to another non-government 457b plan. I think that makes it your tax sheltered vehicle of last resort. I presume you are filling up your IRA already as well? If you have kids who will eventually go to college a 529 plan is another alternative to expand your tax sheltered space. Depending on your health care situation HSA is another option as well.
After filling everything else up the choice between 2% to 457b and 2% to taxable seems a difficult choice. However, here are some things to consider:
- The less faith you have in the 457b plan (high fees, bad fund selection) and the hosting company (likelihood of lasting until you can withdraw) the more you should consider going taxable instead.
- Consider your long term tax burden. For a "true" mustachian the income in retirement could be so low that the advantage of tax sheltering in the long term is low. You might make a bunch of money during the accumulation phase and be in a high tax bracket but a sensible taxable investment choice (total market giving only 2% qualified dividends) will only see a little bit of tax drag and only for that period of accumulation. Once in draw down your tax rate will be quite low (if you are a real low spender even 0% capital gains tax rates) and the advantage of tax sheltering might be so marginal that the risk of a 457b isn't worth it.
Last, consider I know very little about 457b plans beyond their theoretical risk. I really don't know if their credit exposure is a "real" risk or an "imaginary" risk. The above discussion presumes it is "real". It would be interesting to know how many 457b plans actually "fail".
