Author Topic: 401k vs 457 vs IRA vs Roth  (Read 3973 times)

FarmerPete

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401k vs 457 vs IRA vs Roth
« on: January 12, 2015, 11:24:57 AM »
I'm a state worker who is saving about $15k per year in retirement accounts.  I've got a plethora of options of accounts available to me.  The state offers me a 401k, Roth 401k, and a 457 account.  All of these are hosted by ING/Voya, and have low fee funds (I pay a range of 0.01% for S&P 500 to 0.06% for my international fund).  I also have a IRA for me and my wife, and a Roth IRA for me.  Anticipated gross income for 2015 is $75,000k.  I'm in the 15% marginal tax bracket.  I'm married with 1 kid, and I'm the only wage earner.

I've been following the traditional advice of max 401k match (~$3750 for me) and then max out our IRAs.  This results in $15,000.  Thinking about FIRE, I'm thinking that I should utilize my 457 over my 401k and IRA.  Does anyone view this as being unwise?  My understanding is that as a 457 is "Deferred compensation", I can actually start to withdraw the principle at any time I want after I've left my job.  Thus I could skip the complexity of doing a roth ladder.

Cheddar Stacker

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Re: 401k vs 457 vs IRA vs Roth
« Reply #1 on: January 12, 2015, 11:49:41 AM »
You are in a unique position having access to so many accounts. The 457 should go first for the reasons you mentioned unless it has lower employer matches or higher expense ratios.

If you can save more than $15K, you can pay very little in tax. Check out this post:

http://rootofgood.com/make-six-figure-income-pay-no-tax/

MDM

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Re: 401k vs 457 vs IRA vs Roth
« Reply #2 on: January 12, 2015, 12:06:48 PM »
See http://forum.mrmoneymustache.com/investor-alley/many-retirement-account-options-maybe-too-many/ for a similar discussion.  You may be able to use more than one option.

FarmerPete

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Re: 401k vs 457 vs IRA vs Roth
« Reply #3 on: January 12, 2015, 02:09:38 PM »
I budget our expenses at $3429.68 a month.  That's $41156.16 a year.  After payroll deductions, I've been getting on average $4324 a month or $51886.19 a year.  That's after my 5% contribution to my employeer retirement.  Then the $11k to IRA pretty much covers where the rest goes.  As my income goes up, I'll put more in.

I've gone over my expenses quite a bit, and I don't see how I can really cut them down too much.  A lot of those expenses aren't really expenses as much as saving for rainy days.  My monthly break down is:
$250 Car Replacement
$250 Home Maintenance/Repair
$100 Car Repair
$360 Tithing

That's $960 a month, $11,520 a year that I'm not really "spending".  Yeah, I could save less for my furnace breaking, but with a 15 year old furnace, that's probably not a good idea.  I don't have to tithe $360 a month, and I'm sure my IRA would thank me for not tithing, but it's a priority in my life that I've made, and I feel it's justifiable.  In other words, if all of my plans come together and I get the $7815 gross increase in wages this year, I'll be able to save most/all of it.  I don't think I could save much more without getting income from somewhere else.



MDM

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Re: 401k vs 457 vs IRA vs Roth
« Reply #4 on: January 12, 2015, 02:21:20 PM »
A lot of those expenses aren't really expenses as much as saving for rainy days.  My monthly break down is:
$250 Car Replacement
$250 Home Maintenance/Repair
$100 Car Repair

That's $600 a month, $7,200 a year that I'm not really "spending". [removed tithing]
Something to consider, depending on your risk tolerance: invest the amount above in Roth IRAs, from which you can freely withdraw contributions at any time.  Then take what you were investing in Roth IRAs and put that into your pre-tax options instead.

seattlecyclone

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Re: 401k vs 457 vs IRA vs Roth
« Reply #5 on: January 12, 2015, 02:28:14 PM »
I've gone over my expenses quite a bit, and I don't see how I can really cut them down too much.  A lot of those expenses aren't really expenses as much as saving for rainy days.  My monthly break down is:
$250 Car Replacement
$250 Home Maintenance/Repair
$100 Car Repair

Do you already have an emergency fund? If so, I'd say you have already saved for "rainy days." Stop this extra cash saving and bump up your retirement contributions so that more of your money is working for you. If and when you do need to replace your furnace or your car unexpectedly, use your emergency fund to pay for it and dial back the retirement contributions for a while until the emergency fund gets back up to a level that you're comfortable with.