Author Topic: Should I move the $ in my Roth IRA to my 457B?  (Read 1494 times)

ChaseJuggler

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Should I move the $ in my Roth IRA to my 457B?
« on: April 23, 2015, 09:20:34 AM »
Before I ever heard about FI, I was still saving up for my future. At the time, I thought the best place to throw my money was a Roth IRA. But I now throw all my savings at my 457B since I can easily access the money when I hit FI.

My mustache wasn't long enough in 2015 for me to have any hope of hitting the $18k limit by December in the 457. Would it be wise to withdraw from my Roth IRA and push those funds into the 457? In my mind, I would be paying taxes on it, but then immediately deducting it again so it would have a net cost of zero to do so. The plus side being that I have that money the day I hit FI instead of when I turn 60. (I'm 28 years old and plan to hit FI around 41 or 42.)

Would there be any advantage to not doing this and letting the money sit in the Roth instead?

Note: Most of the money in the Roth is gains, not principal. (Withdrew most of the principal last year to throw it at the mortgage and reduce PMI expenses.)

Mother Fussbudget

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Re: Should I move the $ in my Roth IRA to my 457B?
« Reply #1 on: April 23, 2015, 09:46:29 AM »
457B plans are tax DEFERRED - meaning you'll still pay taxes on the funds in the accounts when you withdraw them, but at a later date.  ROTH plans are tax FREE if the funds are used after age 59-1/2. 

BUT... *IF* your 457B plan allows you to have designated ROTH accounts within your 457B plan, then you can do a Roth Rollover into that roth account portion of your 457B plan.  Ask your plan administrator for details on if your plan supports this, and if so, the steps you would need to follow to make it work for your situation. 

Otherwise, I would leave the funds in the current Roth account in something like VTI or VTSAX, and leave it until age 59-1/2. 
Tax FREE beats tax DEFERRED every day of the week.   Good luck in your quest for FIRE!

Hamster

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Re: Should I move the $ in my Roth IRA to my 457B?
« Reply #2 on: April 23, 2015, 09:54:16 AM »
The other question is who owns the money in your 457. If you work for the government, it is probably safely 'yours'. If work for a private not for profit, the assets essentially belong to your employer until you leave and take that money. Remember, a 457 is not technically a retirement plan, but is deferred compensation. You pay the taxes on it later because you are choosing to defer your pay until later. If your organization goes bankrupt, you will have to get in line with the other creditors to get your money. Look carefully at the plan documents.

BarkyardBQ

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Re: Should I move the $ in my Roth IRA to my 457B?
« Reply #3 on: April 23, 2015, 10:01:22 AM »
I have a 457 plan... not sure if you can roll anything INTO it, I know you can't roll a 403b into it. I know you can roll the 457 into a TIRA, but that's dumb.

Couple thoughts:

1) If you COULD roll that money over, it's already been taxed, but then when you withdrawal it from the 457, it will be taxed again. Ouch!

2) You may not be able to roll over the Roth but you could withdrawal previous 5 year old contributions and live on those while you max out the 457. The advantage here is that you can live on taxed money while you defer new contributions to your 457. Cool! But it sounds like you don't have enough in the Roth to cover your expenses for 1 year while you defer to your 457.

I think your time line of 14 years means you should be contributing the max to your 457 while you have it and then contribute anything left over to a Traditional IRA, if you don't also have a 401k or 403b, cause you can have one of those along with a 457b at the same time. Your 457 account can be treated as your taxable account for now (no penalty but taxed), anything you put into your a 401k or TIRA can be used in a Conversion Ladder while you live on the 457 funds. My wife and I both have 403b's and 457b's, we max out each, this leaves us with very little to put into a taxable account, but thats ok, because when we pull the trigger, we have options: Live on the 457 funds while we do 5 year conversions, or live on part time income while we do conversions and leave the 457 alone until we don't want to work part time.

If you don't save anything into a taxable account, you should also have an emergency fund, since it would be very hard and expensive to pull any of your investments for emergencies.
« Last Edit: April 23, 2015, 10:05:48 AM by zdravé »