Taxable Or A Roth With Pension

[Andrew928]

Hello!

I am about to aggressively start investing but I seem to be at odds with what type of investment vehicle I will be using. I used to be on the Roth train but now I work for county government with a 20 year pension. If i just do the 20 years(Likely will do 25) I will be 45 years old and that puts me way below the 59 1/2 needed for a Roth IRA. Would it make sense for me to go with a dividend portfolio in a taxable account to supplement my income in 20 years?

Side Note: I also have access to a 457(b)

Thank you!

[Rob_bob]

Well currently at your age you can contribute $6,000 per year to your Roth account.  So in 25 years that's $150,000 of contributions that can be withdrawn tax and penalty free.

Only the income/gains on the investments would be subject to a penalty if you pulled it out before turning 59.5 years old.

You could pull the contributions out and spend it or invest in a taxable account.

[terran]

20 years, 5% returns, $6000 annual contribution means you'll have about $200k in the Roth, $120k of which will be from contributions, resulting in 4% SWR of $8000. Roth contributions can be withdrawn penalty free before 59.5, so you'll be able to withdraw $8000/yr for 15 years. That's cutting it somewhat close and while the $200k is probably inflation adjusted, the $120k isn't, so you're probably right that you want some available in a taxable account. I would still max out Roth unless that's everything you're saving.

[robartsd]

Side Note: I also have access to a 457(b)

457(b) is an awesome early retirement vehicle. Usually you can access the money penalty free as soon as you separate from employment regardless of age. Are the investment options in your 457(b) at all acceptable?

[MDM]

Might be worth your while to read https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153 and at least several of the links therein.

[px4shooter]

What kind of pension plan are you a part of?

My tax advisor told me I couldn't max out a 401k, due to my defined benefit state plan. I was already using the 457, but not maxed out. I wanted to try and do both, but he said I could not. I have not found anything to verify this though and already dumped the 10k in a 401k during 2018.

For your 457, look at your max annual contribution. If you don't max out each year, you have the final 3 years for a catch-up provision. Look at this, especially when you are looking at your final cashout from your employer.

[Andrew928]

SRS(Sheriff Retirement System)

works on years of service 2.5% per year making it 50% at 20 years. The payout is based on your three highest earning years, There is also an option to buy 1 year of service for every 5 actual years. I called HR about purchasing time but they were very tight lipped about it and will not give any real information until I have 5 years in.

[TomTX]

What kind of pension plan are you a part of?

My tax advisor told me I couldn't max out a 401k, due to my defined benefit state plan. I was already using the 457, but not maxed out. I wanted to try and do both, but he said I could not. I have not found anything to verify this though and already dumped the 10k in a 401k during 2018.

For your 457, look at your max annual contribution. If you don't max out each year, you have the final 3 years for a catch-up provision. Look at this, especially when you are looking at your final cashout from your employer.

That tax advisor sounds.... questionable. I have a state pension (vested, can't draw for awhile, amount goes up the longer I work) - I maxed out the 457 this year with $19k and put $12k in the 401k.

While 401k and 403b limits are combined (ie, $19k total for 2019) - a 457 is a different beast with a separate limit.

[TomTX]

SRS(Sheriff Retirement System)

works on years of service 2.5% per year making it 50% at 20 years. The payout is based on your three highest earning years, There is also an option to buy 1 year of service for every 5 actual years. I called HR about purchasing time but they were very tight lipped about it and will not give any real information until I have 5 years in.

Wow, that's nice. I couldn't buy service time until 10 years of service. I also get a lower percentage of payout per year of service and longer time requirements for draw. Law Enforcement gets the higher rates here too.

[px4shooter]

That tax advisor sounds.... questionable. I have a state pension (vested, can't draw for awhile, amount goes up the longer I work) - I maxed out the 457 this year with $19k and put $12k in the 401k.

While 401k and 403b limits are combined (ie, $19k total for 2019) - a 457 is a different beast with a separate limit.

I am doing more research. It stinks, as I already dumped cash into a 401k in 2018 and he said I can't claim it. I am doing the catch up on the 457, which is 38k per year. Per some of the articles, it says I can still max my 401k out too. I have business income and rental income outside of my .gov employer, so trying to invest more pre-tax is a good thing. I do remember him talking about my gross income being the limiter, as it was too high. Time for some more research.

https://wrennefinancial.com/can-maximize-401k-403b-457/

[MDM]

..I already dumped cash into a 401k in 2018 and he said I can't claim it.

What usually happens with 401k contributions is that the employer subtracts them from your gross wages and reports the difference in W-2 Box 1.  Then your W-2 Box 1 goes directly to Form 1040, so there is not a question of claiming or not claiming.

How does your situation differ?

[TomTX]

..I already dumped cash into a 401k in 2018 and he said I can't claim it.

What usually happens with 401k contributions is that the employer subtracts them from your gross wages and reports the difference in W-2 Box 1.  Then your W-2 Box 1 goes directly to Form 1040, so there is not a question of claiming or not claiming.

How does your situation differ?

The followup post was a bit of a jumble, but it sounds like he was doing a solo 401k in addition to the employer 401k, which would explain why he couldn't deduct it all, presuming the combined amount was above $19k.