Author Topic: savings question  (Read 1358 times)

Calvawt

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savings question
« on: January 31, 2015, 11:18:08 AM »
I am looking to see what most think makes the most sense and why for our retirement savings order.  I get a small match on the 403b.  We have a 403b and a 457b both with $18k maximums.  Also a traditional IRA for my wife and Roth IRAs for both of us.  I am firmly in the 25% tax bracket and have about $40k to allocate.

Currently we are on pace to do this for 2015:
403b-        $18  k
457b-        $10  k
Trad IRA-  $ 5.5k
Roth IRAs-$ 6.5k
Total          $40  k

Should I just push towards the 457b max instead of the Roths?  We are about 7 years away from FIRE (well I am, my wife might go back to work).  I was using the Roth IRAs to make sure we have some available funds in the first 5 years of early retirement while we do a Roth conversion ladder to supplement cash and taxable investment account balances.  Also, I like funding the traditional IRA because it has no fees and a huge range of options.  In 2016, I will be able to max out all 5 accounts, so it is just a conundrum for this year.

Any opinions?

seattlecyclone

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Re: savings question
« Reply #1 on: January 31, 2015, 11:23:04 AM »
If you want to ensure you have funds available in the first five years of retirement, there's no better place for it than the 457 plan! There's no early withdrawal penalty on this account, you just pay normal income tax on whatever you take out. In the 25% tax bracket I would probably prioritize this over a Roth IRA. My priority order would probably be as follows:

1) 403(b) up to maximum match
2) 457 up to maximum
3) 403(b) up to maximum
4) Traditional IRA
5) Roth IRA
6) Taxable investments

If your 403(b) investment options aren't very good, I might switch (3) and (4) in the list above.

Also if you plan to max out everything in 2016, remember that you have until mid-April 2016 to fund your 2015 IRAs, while the 403(b)/457 plans have to be funded by the end of 2015. That could be a point in favor of funding the employer-based accounts first even if the investment options aren't quite as good.
« Last Edit: January 31, 2015, 11:25:22 AM by seattlecyclone »

Calvawt

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Re: savings question
« Reply #2 on: January 31, 2015, 11:27:37 AM »
Good points.  I could finish the Roths and Traditional IRA in the first couple months of 2016.  I forgot to consider that (though I have done it in the past).  Thanks!