Author Topic: How much should we put in the 457B? Roth or Trad IRA?  (Read 1224 times)

catccc

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How much should we put in the 457B? Roth or Trad IRA?
« on: January 16, 2018, 11:42:47 PM »
For a long time, our family only had one employer sponsored retirement plan.  Now that DH works at a University instead of a coffee shop, we have 3!  My 401K, his 403B and his 457B.  For 2017 we maxed out my 401K and contributed the % that would have been max to his 403B if he'd worked at U the whole year.  (He started in June so it was only ~9K he put it.)  We did not utilize the 457B.  We also maxed out our two traditional IRAs.  I did some preliminary tax calculations for 2017 and I estimate we are just barely under the 99K MAGI phase out to deduct our traditional IRA contributions.  This was kind of alarming since we are used to being comfortably below any phase outs for anything, with AGI at or under 80K in recent years.

Current NW as of 12/31/17 was as follows:
$295K - Tax Deferred Retirement Savings (2 traditional IRAs, a rollover IRA, a 401K, and a 403B)
$297K - After Tax Retirement Savings (2 Roth IRAs)
$169K - Taxable investments
$  80K - Kids' 529s (IDK why I'm including this.  kinda not pertinent to question... but part of NW)
$  58K - Other cash savings
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$898K  (as of 12/31/17.  I can't believe this market.  Today, 17 days later, we are at $928K.  Very mixed feelings.)

no real estate, we rent because it's easy.

This year, we will max out at least my 401K, his 403B, and both of our IRAs.  But IDK if we should be doing traditional or Roth.  We have to think about staying below the 101K MAGI phase out cutoff if we want to deduct a traditional IRA, and we also have to think about keeping dollars out of the 22% tax bracket.

Our top tax bracket for 2017 is 15% and we expect it will be 12% for 2018.  I guess I always expected we'd be in the same tax brackets in RE, too, so maybe none of this really matters that much?  I do want to have a variety for draw down options, and it's currently pretty evenly split.

What do you think we should do and why?  Max out the 457B?  Put in just enough to stay in the 12% tax bracket and deduct traditional IRA contributions?  Utilize the 457B but forget about traditional IRAs and contribute to Roths instead?  Do half Roth and half traditional?   I've been sitting on making a decision for a couple of weeks now and each day the shares get pricier!  (We typically max out our IRAs the first day of the year or close to it.)

MDM

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #1 on: January 17, 2018, 01:36:04 AM »
You might take a look at the Investment Order sticky, including the parts about calculating/estimating your marginal rates.

"Keep up the good work" seems as good advice as any!

Finances_With_Purpose

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #2 on: January 17, 2018, 03:54:24 AM »
Max the 457 before a 401k I believe.  Penalty-free withdrawals. 

Unless the plan options are truly awful, max the 457.  You can then use it if you retire early.  See the thread the poster above linked to - it's mentioned there as well.  Check that yours can do that and can be rolled into an IRA afterwards.  And if so, max that thing out. 

Double-check me on it, but that's my understanding at least. 

catccc

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #3 on: January 17, 2018, 09:29:23 AM »
Awesome, thanks for the input!  I have been around long enough and have seen that sticky, I can't believe I didn't think to check it before posting!  Must've ignored the 457 part before since there was no indication we'd ever have access to one.  Anyway, thanks for the link and the pat on the back, MDM!

FWP, the 457 is administered by TIAA so I wonder what the investment options are like, but I will check them out.  And I will definitely have to read up about 457 rules.  I kinda assumed it worked just like a 401K or 403B, but very intrigued to learn there are some distinct advantages.  Should have researched a little better when DH first landed the job!

catccc

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #4 on: January 17, 2018, 11:18:26 AM »
score!  Looks like vanguard fund options are plentiful with DH's 457!

Finances_With_Purpose

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #5 on: January 17, 2018, 01:00:40 PM »
With a big employer, you may even get access to the ultra-low-cost funds that normal investors (under $1MM in a fund) can't access.  Just depends. 

terran

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #6 on: January 17, 2018, 08:49:17 PM »
One thing to note is that 457 plans are two different animals depending in whether your husband's employer is a state school or a private. Governmental 457s are great and you should absolutely contribute because of the early withdrawal options. Non-governmental is less certain since they're subject to the creditors of the university, so you have to take that extra risk into consideration.

catccc

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #7 on: January 17, 2018, 09:29:57 PM »
Yes, the part about 457 plans kinda being an iou from your employer would make me a little nervous,  however, it is a state school so I feel pretty safe.  Just got enrolled today.  DHs salary is only 40k, and we need to leave enough to cover his share of benefit premiums.  It seems weird to get such a teeny paycheck.  His contribution will go from 40-some % to 60%, and thats not maxing our either plan (30% to each). I will have to tweak contributions percentages at some point.

And yes, the vanguard funds Im seeing there have unusually low expense ratios.  For instance I am pretty sure that at a previous employer of mine, Vanguard 2045 had a 0.16% or 0.18% expense ratio.  The vanguard 2045 in DHs plan is only 0.09%.  (We ended up choosing our own mix of vanguard index funds, but the target date fund was just a benchmark I remembered.)

terran

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Re: How much should we put in the 457B? Roth or Trad IRA?
« Reply #8 on: January 18, 2018, 10:50:47 AM »
Yes, the part about 457 plans kinda being an iou from your employer would make me a little nervous,  however, it is a state school so I feel pretty safe.

In that case you can feel completely safe (at least to the extent you feel safe with a 401k). Governmental 457s are not subject to the university's creditors.

If you feel so inclined you might also want to take a look at the plan documents for your husband's 403b. Turns out my wife's plan is set up to allow mega-backdoor roth (after tax contributions plus in plan roth conversion. In service withdrawal of the after tax portion would also work). We're living off of some taxable account money this year in order to get money into that.