Author Topic: 457(b): Is it worth the extra fees?  (Read 370 times)

La Bibliotecaria Feroz

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457(b): Is it worth the extra fees?
« on: February 06, 2021, 04:00:33 PM »
Hi! I have been around the forums for many moons but I don't think I know a lot of y'all here in Investor Ally. My spouse and I are married filing jointly with a household income hovering right around the $100K mark in an HCOLA, raising two kids, so we don't have a ton of leftover income. I'm 40, he's 35.

Currently we put money in his 401(k) just enough to get the match, we both have HSAs, and I have a city employee defined benefit pension fund that grabs 10% of my paycheck (already vested). The last few years, the only other thing we've done is fully fund my Roth. Now that we have a little more of a cash cushion (we both had divorces to pay off and we bought this house), I don't feel as compelled to do the Roth if something else is better.

I've only just realized that what I have access to isn't a 401(k), it's a 457(b). No match, and I haven't opened an account. My question is, if I can't afford to fund both an IRA and the 457(b), is it worth the extra flexibility to do the 457(b)? Vanguard Total Stock Market Index in that form will cost me .155% versus .04% if I buy it myself in the IRA. Thoughts?

bacchi

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Re: 457(b): Is it worth the extra fees?
« Reply #1 on: February 06, 2021, 04:15:23 PM »
1) Is it a governmental 457? A non-profit 457 can be seized.

2) What's your marginal tax bracket?

At a cost of $6.90/year, being the difference in fees for a $6k contribution, you could reduce this year's taxes by at least $600. May be worth it for that reason alone.

La Bibliotecaria Feroz

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Re: 457(b): Is it worth the extra fees?
« Reply #2 on: February 06, 2021, 04:31:22 PM »
1) Is it a governmental 457? A non-profit 457 can be seized.

2) What's your marginal tax bracket?

At a cost of $6.90/year, being the difference in fees for a $6k contribution, you could reduce this year's taxes by at least $600. May be worth it for that reason alone.

1. Government,

2. Not sure.

If I could reduce my taxes by contributing to the 457(b), couldn't I get exactly the same reduction for lower fees by contributing to my deductible IRA? I can't afford to do both.

charis

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Re: 457(b): Is it worth the extra fees?
« Reply #3 on: February 06, 2021, 04:54:20 PM »
A 457 is a deferred compensation account, not a traditional retirement account like a 401k, IRA, or 403b.  It's more flexible in that you can withdraw without penalty after leaving that employer. It's ideal for early retirement, but I value the flexibility regardless of retirement age. If governmental, it would be the first account I would max, after contributing to the match on a 401k-type account and maxing an HSA. So I'd put it above an IRA, personally.


chaskavitch

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Re: 457(b): Is it worth the extra fees?
« Reply #4 on: February 07, 2021, 08:52:38 AM »
If I could reduce my taxes by contributing to the 457(b), couldn't I get exactly the same reduction for lower fees by contributing to my deductible IRA? I can't afford to do both.

If your tIRA contributions are completely deductible, your tax savings would be the same, yes.  How much you can deduct depends on your AGI for the year.

According to the IRS, if you ARE covered by a retirement plan at work, you're filing jointly, and your AGI is $104,000 or less, you can deduct the full $6k you can contribute to a tIRA.  If your AGI is between $104k and $124k, you're eligible for a partial deduction, and above $124k, you can't deduct any of it.  So it depends on how close to $100k you really are :)

https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

La Bibliotecaria Feroz

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Re: 457(b): Is it worth the extra fees?
« Reply #5 on: February 08, 2021, 12:37:16 PM »
If I could reduce my taxes by contributing to the 457(b), couldn't I get exactly the same reduction for lower fees by contributing to my deductible IRA? I can't afford to do both.

If your tIRA contributions are completely deductible, your tax savings would be the same, yes.  How much you can deduct depends on your AGI for the year.

According to the IRS, if you ARE covered by a retirement plan at work, you're filing jointly, and your AGI is $104,000 or less, you can deduct the full $6k you can contribute to a tIRA.  If your AGI is between $104k and $124k, you're eligible for a partial deduction, and above $124k, you can't deduct any of it.  So it depends on how close to $100k you really are :)

https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

Oooh, interesting. I looked it up and we were just under $100K last year but miiiiight be over the $104 markthis year. Would contributions in 2021 be based on AGI for 2020? Is that how it works? Or would I literally have to guess what we'll make in 2021?

bacchi

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Re: 457(b): Is it worth the extra fees?
« Reply #6 on: February 08, 2021, 12:56:20 PM »
If I could reduce my taxes by contributing to the 457(b), couldn't I get exactly the same reduction for lower fees by contributing to my deductible IRA? I can't afford to do both.

If your tIRA contributions are completely deductible, your tax savings would be the same, yes.  How much you can deduct depends on your AGI for the year.

According to the IRS, if you ARE covered by a retirement plan at work, you're filing jointly, and your AGI is $104,000 or less, you can deduct the full $6k you can contribute to a tIRA.  If your AGI is between $104k and $124k, you're eligible for a partial deduction, and above $124k, you can't deduct any of it.  So it depends on how close to $100k you really are :)

https://www.irs.gov/retirement-plans/plan-participant-employee/2020-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

Oooh, interesting. I looked it up and we were just under $100K last year but miiiiight be over the $104 markthis year. Would contributions in 2021 be based on AGI for 2020? Is that how it works? Or would I literally have to guess what we'll make in 2021?

The latter, which makes it tricky if you're on the edge. You could always put a little ($2-3k?) in the 457 to lower your AGI and put the rest in the tIRA.

I'm with charis above though. The 457's advantage is the ability to withdraw at any time after quitting. You can't do that with a tIRA without paying a penalty.