Account withdrawals

[Murse]

Hello everyone,

Tried speaking to a financial advisor who wasn’t any help, now I am here.

I anticipate making 60-70k over the next 12 months.

Monthly expenses are 5-6k

We have 280k in a taxable brokerage account and 240k in a 457 deferred comp plan (as well as other assets that are not relevant to this discussion).

I want to go to grad school which I anticipate will cost 80-100k over a 3 year period (medical specialty). I anticipate my income will go up significantly to over 200k annually after graduating. I plan to work in this profession more then 10 years after graduation.

I anticipate working at my 60-70k annual job for at least the first 12 months of school. Once I leave, I will have access to my 457 money. I work in a state with 9% marginal income tax rate and live in a state with no income tax.

Questions-
1) while working, should I attempt to max out my 457? Doing this should result in avoiding state income taxes (assuming I withdraw it all while in school without an income) (I could max it either as a Roth or traditional)
2) while in school, should I empty my 457? There is a decent chance we end up living in a state with income tax, potentially a high income tax after school is completed.
3) if I am going to empty my 457, should I set up a CD ladder inside and how much should be in CD’s vs VTI?


Assume there are no tax consequences from taxable brokerage sales. We would like to leave the taxable brokerage fairly full (if it makes sense) as we want to upgrade houses when done with grad school.

Please ask if more information is needed - thanks!

(Yes, I do actually know people in the specialty making this kind of money, I am not doing it for the money, I am doing it for a change in lifestyle.)

[Murse]

Bump

[Morning Glory]

If you have a pension you need to make plans for what to do about rolling it over. I chose to take the lump sum and roll it into my tIRA which was not a taxable event. When you leave you should also get a large cash payment for unused vacation and whatnot.

What do you plan on doing for health insurance while in school? If using ACA you can get lower deductibles if you keep income around 200% FPL for your family size. If your state does not have expanded Medicaid you will want to keep it at least high enough to get ACA subsidies (136% FPL I think). There is usually a higher cutoff for Medicaid for kids than adults so you may be dealing with 2 different plans.  I found the easiest way to determine all this was to go to healthcare.gov and just type in different income amounts to see how they affected subsidies, cost sharing, and Medicaid eligibility.

[MDM]

I anticipate making....
...
We would like to leave the taxable brokerage....

Filing single or MFJ?

If MFJ, is there another income?

[reeshau]

You say you talked to a financial advisor. (a term that means nothing)  Did you talk to a fee-only, Certified Financial Planner (CFP)?  That would be the kind of professional who could help you with these questions.

This sounds relatively short-term; if you need the money in less than 5 years, don't have it in stocks.  We aren't at an incredible market low, so you can't have high confidence where we will be in 12 months.

With a 457, be aware you are a creditor to your (future-former) employer.  Should they go bankrupt, you could lose it; you would be an unsecured creditor.  They may have taken out insurance against this eventually.  You may want to get that clarified.  If they say they are "self-insured," they simply mean they can't fathom ever going bankrupt.  Famous last words.  Of course, this question becomes a lot more important if you are going to keep this account with them for a long time.

Are you determined to go through grad school debt free?  You might consider the long-term math about letting your investments grow, and financing at a fixed rate.

[uniwelder]

I anticipate making 60-70k over the next 12 months.
Monthly expenses are 5-6k
...
1) while working, should I attempt to max out my 457? Doing this should result in avoiding state income taxes (assuming I withdraw it all while in school without an income) (I could max it either as a Roth or traditional)

Sorry, I'm stuck on this question.  It sounds like your monthly expenses are equal to your income.  How do you plan to contribute anything to the 457?

[Murse]

If you have a pension you need to make plans for what to do about rolling it over. I chose to take the lump sum and roll it into my tIRA which was not a taxable event. When you leave you should also get a large cash payment for unused vacation and whatnot.

What do you plan on doing for health insurance while in school? If using ACA you can get lower deductibles if you keep income around 200% FPL for your family size. If your state does not have expanded Medicaid you will want to keep it at least high enough to get ACA subsidies (136% FPL I think). There is usually a higher cutoff for Medicaid for kids than adults so you may be dealing with 2 different plans.  I found the easiest way to determine all this was to go to healthcare.gov and just type in different income amounts to see how they affected subsidies, cost sharing, and Medicaid eligibility.

Why do I need to make plans for rolling over my pension? I am vested and can leav it in place until retirement age, also would leave the door open to returning if I wanted.

Yes, I do plan on using ACA benefits- thanks for your insights on this.

[Murse]

I anticipate making....
...
We would like to leave the taxable brokerage....

Filing single or MFJ?

If MFJ, is there another income?

MFJ, no second income, two dependents under 3 as of now.

[Murse]

You say you talked to a financial advisor. (a term that means nothing)  Did you talk to a fee-only, Certified Financial Planner (CFP)?  That would be the kind of professional who could help you with these questions.

This sounds relatively short-term; if you need the money in less than 5 years, don't have it in stocks.  We aren't at an incredible market low, so you can't have high confidence where we will be in 12 months.

With a 457, be aware you are a creditor to your (future-former) employer.  Should they go bankrupt, you could lose it; you would be an unsecured creditor.  They may have taken out insurance against this eventually.  You may want to get that clarified.  If they say they are "self-insured," they simply mean they can't fathom ever going bankrupt.  Famous last words.  Of course, this question becomes a lot more important if you are going to keep this account with them for a long time.

Are you determined to go through grad school debt free?  You might consider the long-term math about letting your investments grow, and financing at a fixed rate.

Yes, I spoke to a CFP who told me I shouldn’t use 457 funds because of an early withdrawal penalty. I told him there was no early withdrawal penalty, he was very doubtful of that. I eventually had to tell him “assume I am right and there is no early withdrawal penalty, what would your advice be?” To which he said “you put it in a retirement account and I wouldn’t recommend anyone use retirement money for non-retirement items”.

My 457 is with a state employer, the risk of bankruptcy is fairly low IMO, but good point.

I could take student loans I suppose but I have a hard time taking student loans at > 7% when I have the funds to stay debt free. I could see doing this as a way to stay in stocks and take loans if the stocks happen to be down.

[Murse]

I anticipate making 60-70k over the next 12 months.
Monthly expenses are 5-6k
...
1) while working, should I attempt to max out my 457? Doing this should result in avoiding state income taxes (assuming I withdraw it all while in school without an income) (I could max it either as a Roth or traditional)

Sorry, I'm stuck on this question.  It sounds like your monthly expenses are equal to your income.  How do you plan to contribute anything to the 457?

I would withdraw from my brokerage - effectively moving money from my brokerage to my 457, either in Roth or traditional.