Author Topic: 457 & side-hustle 401k  (Read 3618 times)

BarkyardBQ

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457 & side-hustle 401k
« on: December 11, 2014, 10:05:52 AM »
I am in the process of opening my 457 plan, but have a few questions.

I have a part time job where I earn around $6500-7000 a year. I can defer 40% (max selectable option in the 401k website) of my salary to the 401k. The 401k offers a 50% match on the first 3% of income... somehow this shows a 7% employer contribution? For this year, about 9 months in, I've contributed ~$2300 with $173 employer contribution.

Going forward I want to make sure that I hit the $18k allowable, but want to allow for the match as it kinda pays for the fixed fees associated with both accounts. So I was planning on contributing 17k to the 457 and $1000+match to the 401k. Does that make sense, or should I just do the minimum match and put more into the 457 for it's benefits. Even maxing out the 457 on primary income would keep me above the 25% bracket.

Then I read RootofGood's post on taxes and he maxes out both 457 and 401k plans... is this possible? Can I max out the 457 and put all my part time income into the 401k? Could I call my employer or Schwab and ask them to set my deferred contribution to 100%? Or would I fall into the over-contribution issue and have to take it out before filing taxes?

Does this only work if both plans are offered by the same employer?

http://rootofgood.com/make-six-figure-income-pay-no-tax/
« Last Edit: December 11, 2014, 10:37:44 AM by zdravé »

Catbert

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Re: 457 & side-hustle 401k
« Reply #1 on: December 11, 2014, 12:18:43 PM »
Yep, you can max them both out.  Doesn't need to be the same employer.  If you had 2 jobs and both offered a 401k (or 2 of the same type of plan) then you would need to ensure that you don't exceed 17.5K this year (18K next year).

dandarc

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Re: 457 & side-hustle 401k
« Reply #2 on: December 11, 2014, 12:20:55 PM »
Yeah max em both - is it a government 457?  If so, this is the bees knees when it comes to retirement accounts - tax deferred and no 10% penalty on early withdrawals (if you've left the employer).

BarkyardBQ

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Re: 457 & side-hustle 401k
« Reply #3 on: December 11, 2014, 03:25:40 PM »
Thanks! Couple more questions.

Wife made 1 contribution to her 457 last week of $1500 and I made $2300 to the 401k. Our gross income is over the Traditional IRA income limit, so we should try and open a Roth for the 2014 year (before april 2015)? And max out Traditional IRAs for 2015? We'll be at 91k MAGI after maxing out 457s and contributions to my 401k.

dandarc

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Re: 457 & side-hustle 401k
« Reply #4 on: December 11, 2014, 03:30:20 PM »
Thanks! Couple more questions.

Wife made 1 contribution to her 457 last week of $1500 and I made $2300 to the 401k. Our gross income is over the Traditional IRA income limit, so we should try and open a Roth for the 2014 year (before april 2015)? And max out Traditional IRAs for 2015? We'll be at 91k MAGI after maxing out 457s and contributions to my 401k.
Sounds about right - unless you can get things maxed for 2014 in the employer-sponsored plans, might be hard to reduce that MAGI for this year.  Maybe you have an HSA?

BarkyardBQ

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Re: 457 & side-hustle 401k
« Reply #5 on: December 11, 2014, 03:32:09 PM »
Even with an HSA it wouldn't be enough.

Thanks dandarc!

dandarc

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Re: 457 & side-hustle 401k
« Reply #6 on: December 11, 2014, 03:54:41 PM »
I'm considering doing this for us:

1.  We've maxed our 2014 Roth IRAs already - to put it bluntly, I don't think we'll wind up with low enough MAGI to go 100% traditional this year, or next unless our income drops next year.
2.  Once I've got that tax return more or less finalized in February or so, I may find that our MAGI is somewhere in the phase-out range.  Maybe I will luck out and we'll be below the bottom of the cutoff, but probably not.
3.  Based on 2, I may recharactize whatever Roth contributions we can to Traditional.

I'm also considering 'topping off' my solo-401K once the final numbers are in, but that's not as big a deal - should be within a few hundred on that one regardless.  But every little bit of taxes saved now helps us get to the end goal faster.

Key point - you can recharacterize your contributions up to your tax filing deadline in the IRAs, so no need to worry about predicting your income 100% accurately in advance.

BarkyardBQ

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Re: 457 & side-hustle 401k
« Reply #7 on: December 11, 2014, 04:51:36 PM »
The 457 benefit kinda killed the need for us to do a Roth Conversion, but we're trying to figure out the best way to use all options. My current thinking is that the taxable account will just be for whatever change (it's a bit more than that) is leftover after max out as much in tax advantaged accounts each year. Since taxes on income from a taxable account and a 457 would be the same.

Not sure I understand recharacterizing, besides the obvious. I picture 2 separate IRAs, where changing the type of contribution means it changes accounts? What happens to the gains?

Next thing to consider is taking 11000 out of the taxable account and maxing out the Roth by Dec 31, and then maxing out the Traditional in January, instead of trying to catch up to 2014 and being late contributing for 2015.
« Last Edit: December 11, 2014, 04:58:15 PM by zdravé »

dandarc

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Re: 457 & side-hustle 401k
« Reply #8 on: December 11, 2014, 05:00:23 PM »
The 457 benefit kinda killed the need for us to do a Roth Conversion, but we're trying to figure out the best way to use all options. My current thinking is that the taxable account will just be for whatever change (it's a bit more than that) is leftover after max out as much in tax advantaged accounts each year. Since taxable income from a taxable account and a 457 would be the same.

Not sure I understand recharacterizing is besides the obvious. I picture 2 separate IRAs, where changing the type of contribution means it changes accounts?

Next thing to consider is taking 11000 out of the taxable account and maxing out the Roth by Dec 31, and then maxing out the Traditional in January, instead of trying to catch up to 2014 and being late contributing for 2015.
Yeah - say you made 11K in Roth contributions for 2014.  But in January, you put your tax return together with the final numbers, and it turns out your MAGI is in the middle of the phase-out range.  So you could have made 5500 in traditional IRA contributions for 2014, had you known this in advance.  A recharacterization allows you to do that - say oops, I meant to do 5500 traditional, and 5500 in the Roth.

And at most brokerages, it really is moving it from one account to the other.  You fill out a form requesting this, and they move 5500 from your Roth account into your traditional account.

BarkyardBQ

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Re: 457 & side-hustle 401k
« Reply #9 on: December 12, 2014, 08:20:03 AM »
Can I roll over the traditional ira's to the roth eventually? I'd pay my income tax level on the rollover amount or is there a limit to the rollover before it gets hit by taxes?

dandarc

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Re: 457 & side-hustle 401k
« Reply #10 on: December 12, 2014, 08:48:55 AM »
That's called a conversion.  Search for Roth IRA Ladder for one use of this for the early retiree.

BarkyardBQ

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Re: 457 & side-hustle 401k
« Reply #11 on: December 12, 2014, 08:58:42 AM »
Yep got that. Sometimes reading other posts makes me question what I already know. Thanks!