Author Topic: 457(b) or Post-Tax Investment?  (Read 1059 times)

desertadapted

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457(b) or Post-Tax Investment?
« on: September 06, 2018, 05:18:50 PM »
Please help me work out some math/deep thinking.  I am trying to decide whether to max 457(b) or instead invest in a post-tax account and am having trouble deciding.

I currently max out my 457(b), 401, and Roth IRA.  My federal tax rate after all allowed deductions/credits, is 8-9%.  I am 9 years from FIRE.   Over 70% of my equities are in 401/Trad IRA.  Approximately 10% are in Roth. 20% are in 457(b).   The 457(b) will be accessible to me at FIRE, distributed as ordinary income.  I will need to survive 7-8 years before hitting 59 Ĺ. 

I canít figure out how  to decide whether from a tax perspective it is more efficient to continue fully funding the 457 (ordinary income withdrawals), or use the same money to invest post-tax, with the increase taxed at capital gains rate.  My low tax rate will increase without the fully funded 457(b).  Iím assuming from 9 to 14%, which is a WAG.  Many of you are smart and mathy and fabulous Ė suggestions are appreciated.   

MDM

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Re: 457(b) or Post-Tax Investment?
« Reply #1 on: September 06, 2018, 05:41:07 PM »
Those appear to be "average" or "effective" tax rates.  If so, forget them - it's the marginal tax rate you would save now, vs. the marginal tax rate you would pay when withdrawing, that matters.

Some resources:
Traditional versus Roth - Bogleheads
The '401k vs Taxable' tab in the case study spreadsheet
Investment Order

terran

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Re: 457(b) or Post-Tax Investment?
« Reply #2 on: September 06, 2018, 06:18:48 PM »
In addition to the current vs future marginal rates MDM notes, another consideration is whether this is a governmental plan (you work for a state government organization) or not. Governmental 457(b)'s are just about the best thing since sliced bread (if the investment options are decent), while non-governmental 457(b)'s are subject to the creditors of the institution.

Not your question, but since you say "I will need to survive 7-8 years before hitting 59 Ĺ," I think it's worth pointing out How to withdraw funds from your IRA and 401k without penalty

desertadapted

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Re: 457(b) or Post-Tax Investment?
« Reply #3 on: September 07, 2018, 08:24:10 AM »
@MDM I will work on the case study spreadsheet and see what it yields - very much appreciated.
@terran I agree, government 457(b)'s are awesome.