Author Topic: 457b vs IRA  (Read 1090 times)

JSMustachian

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457b vs IRA
« on: August 09, 2017, 09:46:37 AM »
Hello everyone,

My main question is should my wife contribute to her 457b plan instead of a Roth IRA?

Our combined income is too high to get the deduction for a traditional IRA ($130,000). We both currently max out each of our 403b's and IRA's. If I am reading correct, a 457b plan will allow me to withdraw the money before the typical age requirements of an IRA or 403b (59 1/2). This would be an attractive option if we are able to retire at 50 like we are planning.

I don't think we will be able to max out the 403b, IRA's and a 457b so I am considering not contributing to her Roth IRA to get the deduction of the 457b. Does this sound like a good plan or should I forget the 457b and continue to contribute to her IRA?

Thank you


sw1tch

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Re: 457b vs IRA
« Reply #1 on: August 09, 2017, 11:57:06 AM »
Hello everyone,

My main question is should my wife contribute to her 457b plan instead of a Roth IRA?

Our combined income is too high to get the deduction for a traditional IRA ($130,000). We both currently max out each of our 403b's and IRA's. If I am reading correct, a 457b plan will allow me to withdraw the money before the typical age requirements of an IRA or 403b (59 1/2). This would be an attractive option if we are able to retire at 50 like we are planning.

I don't think we will be able to max out the 403b, IRA's and a 457b so I am considering not contributing to her Roth IRA to get the deduction of the 457b. Does this sound like a good plan or should I forget the 457b and continue to contribute to her IRA?

Thank you

Overall, a 457B is an excellent retirement vehicle (imo, better than 403, 401, IRA).  You can withdraw from them without paying the 10% penalty anytime after leaving employment.

However, the caveat is: what funds are available for her to invest in?  You'll have to compare 457b to a ROTH IRA ladder, etc and see how to maximize your finances in retirement.

In regards to not funding your ROTH, in my situation I would definitely opt for a pre-tax account to put money in before putting money into the ROTH.  However, as I said above it'll depend on what your personal goals are as to the best way to approach your specific situation.  I'd start with this thread for some ideas on generally what order of accounts you should be investing in: https://forum.mrmoneymustache.com/investor-alley/investment-order/
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jjandjab

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Re: 457b vs IRA
« Reply #2 on: August 09, 2017, 02:50:16 PM »
Is her 457b a government or non-government plan? The reason I ask is that non-government plans are somewhat at risk depending on the stability of the institution. For instance, I work at a small hospital. I contribute the max to my 457b, but I may stop soon. We have had losses the last two years and outlookis marginal. Although unlikely, the 457b assets still belong to the hospital, despite coming out of my paycheck. They are subject to creditors if something happens. But if a gov't 457b, then I would totally do that, as they are protected.

JSMustachian

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Re: 457b vs IRA
« Reply #3 on: August 09, 2017, 03:01:00 PM »
My wife is a teacher so the 457b is government. The Vanguard Total Stock fund is available which I was happy to see.

MDM

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Re: 457b vs IRA
« Reply #4 on: August 09, 2017, 10:26:41 PM »
I am considering not contributing to her Roth IRA to get the deduction of the 457b.
That is a Traditional versus Roth question.

The answer depends on the marginal rate this year's 457 contributions would save on taxes, vs. the marginal rate you would pay for withdrawals based on those contributions.  See the link sw1tch provided for more info and links on this.

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Re: 457b vs IRA
« Reply #5 on: August 13, 2017, 02:48:24 PM »
You have some good info here, so I won't repeat. I have both a 457 and 403 (state employee). With any 457(b) plan you want to get a very good understanding of what the fees are. From what I understand, Plan administrators have more leeway in charging administrative fees on 457 plans than they do on either 403's or 401(k)s. Mine charges a 0.25 % fee every year. Obviously the second I retire I'll be rolling that sucker over.

I am able to contribute the max to both (including the age 50 catch up) and like how they have lessened my tax bill. Considerably. So If you are looking for tax credits it might be the way to go.