Author Topic: My 457 or his Vanguard account?  (Read 689 times)

FireAnt

  • Stubble
  • **
  • Posts: 200
  • Age: 34
  • Location: West Michigan
My 457 or his Vanguard account?
« on: December 15, 2018, 08:01:42 PM »
DH and I are working towards maxing out our retirement accounts in 2019. We aren't quite able to do both yet, so I wanted to ask the forum which one we should focus on maxing out first?

My employer has a government retirement account that you are never able to change once you determine the amount you contribute. I have 6% with my employer matching 6%. They offer a 457 account through John Hancock as an additional avenue due to not being able to alter the 403B 401A. I currently have 8% going towards it. I have 80% in 500 Index Fund JFIVX with an expense ratio of .64 and 20% in Vanguard short-term federal fund VSGDX with an expense ratio of .70 (these were the lowest I could find since the growth multi-manager JILGX charges 1.08%)

My husband's retirement account is through Vanguard and he uses the 2050 Target Date fund. He currently has 6% contributed, with a 6% employer match.

Some notes to consider:
1. I am on the public loan forgiveness track (expected to be done 12/2019). The more money that goes into my retirement, the less taxable income I have which equals lower payments. This may not be a huge factor since I'm already nearly done.
2. My husband gets a bonus each year and he always puts the max, 80%, of it into his retirement account to avoid excessive taxes. He gets the bonus around April and will obviously count towards the max he's able to contribute per year. 

I've read that JH has high management fees and not sure if this is worth the ability to withdraw money before retirement.
« Last Edit: December 17, 2018, 01:17:10 PM by italianant »

MDM

  • Walrus Stache
  • *******
  • Posts: 9403
Re: My 457 or his Vanguard account?
« Reply #1 on: December 16, 2018, 01:58:47 PM »
I've read that JH has high management fees and not sure if this is worth the ability to withdraw money before retirement.
Yes, JH does have high fees and that is a good reason to avoid them if you have other options.

Note that the 457 does not facilitate withdrawal before retirement.  It does allow withdrawal before age 59.5 without penalty (but still subject to tax).  The 401k/403b plans impose a penalty if withdrawn before age 59.5. 

Also, "rollover" and "conversion" are not the same as "withdrawal" as far as the IRS is concerned.  See How to withdraw funds from your IRA and 401k without penalty before age 59.5.

FireAnt

  • Stubble
  • **
  • Posts: 200
  • Age: 34
  • Location: West Michigan
Re: My 457 or his Vanguard account?
« Reply #2 on: December 16, 2018, 04:52:08 PM »
I've read that JH has high management fees and not sure if this is worth the ability to withdraw money before retirement.
Yes, JH does have high fees and that is a good reason to avoid them if you have other options.

Note that the 457 does not facilitate withdrawal before retirement.  It does allow withdrawal before age 59.5 without penalty (but still subject to tax).  The 401k/403b plans impose a penalty if withdrawn before age 59.5. 

Also, "rollover" and "conversion" are not the same as "withdrawal" as far as the IRS is concerned.  See How to withdraw funds from your IRA and 401k without penalty before age 59.5.

You are always replying to my posts-- thanks :)

I am aware of the advantages of the 457 which is why I pose the question. I unfortunately don't have another option while at this job since they won't let me change my contribution to my 403B (too bad-- the fees are not bad!)

MDM

  • Walrus Stache
  • *******
  • Posts: 9403
Re: My 457 or his Vanguard account?
« Reply #3 on: December 16, 2018, 05:25:49 PM »
I unfortunately don't have another option while at this job....
If the two of you can fill his Vanguard account and then the decision becomes "use a high fee 457 or not?", see To 401k or not to 401k? That is the question.  Title says "401k" but the analysis applies to any of the tax-advantaged plans.

FireAnt

  • Stubble
  • **
  • Posts: 200
  • Age: 34
  • Location: West Michigan
Re: My 457 or his Vanguard account?
« Reply #4 on: December 17, 2018, 07:01:10 AM »
I unfortunately don't have another option while at this job....
If the two of you can fill his Vanguard account and then the decision becomes "use a high fee 457 or not?", see To 401k or not to 401k? That is the question.  Title says "401k" but the analysis applies to any of the tax-advantaged plans.

Thanks for your input.

I looked over the 401k or not to 401k link and probably sound like an idiot, but I have little to no understanding of it. I'm really new to the financial world/lingo. Can you clarify?

MDM

  • Walrus Stache
  • *******
  • Posts: 9403
Re: My 457 or his Vanguard account?
« Reply #5 on: December 17, 2018, 10:25:53 AM »
I unfortunately don't have another option while at this job....
If the two of you can fill his Vanguard account and then the decision becomes "use a high fee 457 or not?", see To 401k or not to 401k? That is the question.  Title says "401k" but the analysis applies to any of the tax-advantaged plans.

Thanks for your input.

I looked over the 401k or not to 401k link and probably sound like an idiot, but I have little to no understanding of it. I'm really new to the financial world/lingo. Can you clarify?
The quote from the Bogleheads wiki that appears in https://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/msg798884/#msg798884 is indeed a mouthful.

If you could specify which part is unclear, I'd be glad to attempt a translation.

Entering your own numbers into either of the spreadsheets mentioned there may also be helpful to decipher the suggestion.

FireAnt

  • Stubble
  • **
  • Posts: 200
  • Age: 34
  • Location: West Michigan
Re: My 457 or his Vanguard account?
« Reply #6 on: December 17, 2018, 11:35:14 AM »
I unfortunately don't have another option while at this job....
If the two of you can fill his Vanguard account and then the decision becomes "use a high fee 457 or not?", see To 401k or not to 401k? That is the question.  Title says "401k" but the analysis applies to any of the tax-advantaged plans.

Thanks for your input.

I looked over the 401k or not to 401k link and probably sound like an idiot, but I have little to no understanding of it. I'm really new to the financial world/lingo. Can you clarify?
The quote from the Bogleheads wiki that appears in https://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/msg798884/#msg798884 is indeed a mouthful.

If you could specify which part is unclear, I'd be glad to attempt a translation.

Entering your own numbers into either of the spreadsheets mentioned there may also be helpful to decipher the suggestion.

I think I'm starting to understand. You're suggesting that I use one of the Google doc tools to input information to determine if the 457 plan is worth it the high management fees. Yes, opening both of them it looks overwhelming, but I will spend a little more time and see if I can decipher it.