The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: wallabyjoe on July 11, 2015, 09:58:43 AM
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My wife works at a hospital with a defined benefit cash balance plan. The basics are:
-Guaranteed 6% return while you work there
-Guaranteed 5% if you leave your money there after you leave
-You can't take it out until 65...unless you leave, in which case you can roll it over or take it out in a lump sum
-No apparent tax advantages
About us:
-Married, combined gross income ~$120,000
-Already maxing out Roths, and 401k(s)
-Additional savings currently going to a taxable Vanguard account
Anyway the questions seems to be is a guaranteed 6% return better than a slightly higher average return with my Vanguard index funds (and included risk)?
Thoughts mustachians?
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Most defined benefit plans don't allow you to contribute more - so if you can't take it out until you leave, what is there to decide?
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Besides what Beltim said, since there are no tax benefits, that 6% should be reduced by the benefit you would realize in a tax sheltered account. So if you're in the 25% bracket, 6% return becomes 4.5% when compared to your options in a 401k or IRA account
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So is this pre-tax or post-tax money? You say "roll it over" (which generally means into an IRA or other tax-advantaged account) and "no apparent tax advantages". Those 2 things seem to be in conflict.
Besides what Beltim said, since there are no tax benefits, that 6% should be reduced by the benefit you would realize in a tax sheltered account. So if you're in the 25% bracket, 6% return becomes 4.5% when compared to your options in a 401k or IRA account
OP said they were already maxing out retirement accounts. So the opportunity cost is taxable investing.
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Sounds reasonable to start putting your taxable investment money in there. when you FI, the money is available.
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OP said they were already maxing out retirement accounts. So the opportunity cost is taxable investing.
Whoops, didn't see that part, you're right