Author Topic: 457 vs Vanguard  (Read 331 times)

put me in coach

  • 5 O'Clock Shadow
  • *
  • Posts: 21
457 vs Vanguard
« on: September 10, 2018, 06:57:29 PM »
Hello!

I'm fairly new at Mustachianism and even newer to investing (or less learned), so please help me out in layman's terms if you can lend me that kind of time and patience. :D

I work for a public (government) agency. I get paid about 90k in HCOL area (Bay Area, CA). SO makes ~65k. We are in our mid-30s.

Earlier this year, finally opened opened a 457 with Nationwide (.6% annual fee) and $200 contributions every couple weeks. I'm looking into being more aggressive at this, especially now with a recent step increase (raise).

I also have a pension (not as great as they used to be) that's auto-deducted, with no employee match, and in which i won't be fully vested for another 27 months.

My SO contributes ~$210 to a 401k with Fidelity every couple weeks. (I'm not sure what her fees are for this. I know Fidelity now has some very low-fee options. I am having SO look into it.)

I know we should be investing more. With my step increase and with us wanting to be more aggressive anyhow, please help:

Please help me rank in priority order:

1. 457 to tax benefit max
2. 457 beyond tax benefit max
3. Vanguard IRA or other to tax benefit max.
4. Vanguard IRA or other beyond tax benefit max.
4. SO's 401k to tax benefit max.
5. SO's 401k beyond tax benefit max.

nereo

  • Walrus Stache
  • *******
  • Posts: 8251
  • Location: la belle province
    • Here's how you can support science today:
Re: 457 vs Vanguard
« Reply #1 on: September 10, 2018, 08:43:06 PM »
this should put you on the right track re: investment order
https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153

for basic info on investing, i highly recommend jlcoillins
https://jlcollinsnh.com/stock-series/


start with those and come back as you have questions
~n~

rubybeth

  • Handlebar Stache
  • *****
  • Posts: 1331
  • Location: Midwest
Re: 457 vs Vanguard
« Reply #2 on: September 14, 2018, 08:20:03 AM »
A 457b is usually only available as "deferred compensation" for some types of public sector employees. How were you able to open one on your own?

put me in coach

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: 457 vs Vanguard
« Reply #3 on: September 14, 2018, 11:17:39 AM »
A 457b is usually only available as "deferred compensation" for some types of public sector employees. How were you able to open one on your own?

Huh? "I work for a public (government) agency."

nereo

  • Walrus Stache
  • *******
  • Posts: 8251
  • Location: la belle province
    • Here's how you can support science today:
Re: 457 vs Vanguard
« Reply #4 on: September 14, 2018, 11:22:14 AM »
@dylbertiii - after the sources I liked upthread, have you been able to prioritize your steps, or are you still looking for additional input?

put me in coach

  • 5 O'Clock Shadow
  • *
  • Posts: 21
Re: 457 vs Vanguard
« Reply #5 on: September 14, 2018, 11:43:31 AM »
@dylbertiii - after the sources I liked upthread, have you been able to prioritize your steps, or are you still looking for additional input?

Thanks for following up.

The forum link is a great help, thanks. Also, i'm actually in the middle of The Simple Path to Wealth on Audible, but i'll continue to read through that resource as well.

Another (blessed) twist is that we are going to sell some property my SO inherited in Europe for about $40k USD.

The only debt we have is student loan with about $35k left on it at about 5% interest (right on the fence according to the forum link). We pay about $380/month on that but try to chip off an extra $1k when we can.

Another curve ball: we'll be trying to have a kid within the next 12 months.

We can be convinced otherwise, but our idea is not to pay off the loan with the property money because it's unlikely that we'll have that kind of money around and we'd like to buy a house in the next couple years.

SO has citizenship in an EU country. This is likely a whole 'nother thread, but we're wondering about the best place to keep the money and have it on the ready when we're ready to make a down payment on a house. I'm thinking of perhaps an MMA for the 1.85% interest on the property money. Is there a European market that would be better? Do you have another idea (EU- or US-based)? Would also like to consider the best way to pay the least amount of taxes where possible.

Otherwise, my priorities are:

0. Emergency fund established (but will need to grow a bit as our family grows)
1. No company match for me; SO contributes above family match. Should we limit that to company match, and put the rest towards my 457 until maxed?
2. Debt is right at 5% i believe. Do you recommend wiping this out before maxing 457?
3. No HSAs. I have an FSA option. I'll look into it.
4. We should do Vanguard tIRA or Roth before her 401k but after my 457, correct?
≥5. I get it. Although, idt i'll have much leftover at this point.

I know this is a lot. I appreciate any response that you can give to any of the above!


rubybeth

  • Handlebar Stache
  • *****
  • Posts: 1331
  • Location: Midwest
Re: 457 vs Vanguard
« Reply #6 on: September 14, 2018, 12:14:34 PM »
A 457b is usually only available as "deferred compensation" for some types of public sector employees. How were you able to open one on your own?

Huh? "I work for a public (government) agency."

Oh, gotcha, missed that line. The beauty of these deferred comp accounts is that there isn't an age requirement for distributions, so if you're planning to leave that public employer and retire, that's the account to max out first.

nereo

  • Walrus Stache
  • *******
  • Posts: 8251
  • Location: la belle province
    • Here's how you can support science today:
Re: 457 vs Vanguard
« Reply #7 on: September 15, 2018, 07:38:44 AM »

Otherwise, my priorities are:

0. Emergency fund established (but will need to grow a bit as our family grows)
1. No company match for me; SO contributes above family match. Should we limit that to company match, and put the rest towards my 457 until maxed?
2. Debt is right at 5% i believe. Do you recommend wiping this out before maxing 457?
3. No HSAs. I have an FSA option. I'll look into it.
4. We should do Vanguard tIRA or Roth before her 401k but after my 457, correct?
≥5. I get it. Although, idt i'll have much leftover at this point.

I know this is a lot. I appreciate any response that you can give to any of the above!

A few comments
0: ER funds are necessary, but as your NW increases don't go overboard. Take stock of how secure your jobs are, what your % savings rate is and what other assets you might have to handle a cash emergency (these can be as diverse as investments, HELOCs, family, side-gigs, etc.) . If you have two secure jobs and can live off one income there's little need to expand your ER even when your family gets bigger.  OTOH, if you are in volatile occupations and you have family members with health problems you might want to keep a larger ER fund. 

1: At your income you'll get a large tax savings the more you put into your 457, so I would contribute as much as you can, even if it means not paying down your loan at an accelerated rate.

2: at 5% it's really a personal preference.  My suggestion at your income would be to increase contributions to taxable accounts, but if getting rid of that debt makes you sleep better at night just go ahead and do it.  You have 'just $35k' in debt so you could probably wipe that out within the next two years if you really put your mind to it.

3: FSA is not as good (for savers) as an HSA.  If your employer contributes a match to your FSA definitely take advantage of that - othewise it's not a fantastic option because the funds expire after one year.  Therefore, don't put more into it than you think you will realistically use for medical care.

4:Yes.  Remember you have until April 15th, 2019 to make contributions to your 2018 IRA account.  You can contribute $5,500 each at your age.  With your salary a tIRA is almost certainly going to be better, as your post-retirement spending will likely be far less than your current income.

≥5:  This is territory just for the rarified few who have reached FI, are still working, and have a firehose of cash.  Don't sweat it - in several years you might find yourself having to contemplate these steps, but for right now getting past step 0 is better than a majority of your peers

cheers
~n~