Author Topic: Investment order question  (Read 1061 times)

MrsWolfeRN

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Investment order question
« on: April 28, 2017, 06:04:59 PM »
Step 8:457, 529,or taxable?

Where does a non-government 457 fall in the investment order? I work for a very large and well known non-profit so I don't think bankruptcy is an issue. I like the idea of the 457 because of the ability to withdraw at any age after retirement. I already have my 403b set to almost max by the end of the year, and have maxed both Roths. I do not have access to an HSA.

I am not able to fully max the 403b because I can only contribute whole number percentages, my income varies a bit, and I would lose the match for the rest of the year if I max it out early. I can change my 403b contribution amount at any time but there is a slightly unpredictable delay in when the change will take effect.

Hubby works very part time so he does not make enough to max his 401k, but we could increase his contribution (currently 40%).(a related question: does income he puts in the 401k count as "earned income " for Roth purposes, or would he lose the ability to do the Roth if he put 100% of his salary in his 401k?).

The problem I have with this 457 option is that you can only change your contribution amount during open enrollment, leaving little flexibility to decrease contributions in an emergency, so I would not want to put a large portion of my income into it. My 403b is with Fidelity and has low ERs, so I am assuming the 457 would be the same. There is no company match on the 457.

I am still dithering about whether to open a 529 for my son (currently 2). My state has no tax incentives for the 529 and I don't like the idea of the penalty. Also who knows what the higher education landscape will be like in 16 years? On the other hand, I would like to set aside some money that is "his". Separate taxable account maybe?

We already have about 2 years of expenses in taxable accounts, and we are in the 15% bracket after deductions. Like everyone, I am a bit worried about what the cheeto monster is going to do to our tax codes.

MDM

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Re: Investment order question
« Reply #1 on: April 28, 2017, 09:13:54 PM »
Step 8:457, 529,or taxable?

Where does a non-government 457 fall in the investment order? I work for a very large and well known non-profit so I don't think bankruptcy is an issue. I like the idea of the 457 because of the ability to withdraw at any age after retirement. I already have my 403b set to almost max by the end of the year, and have maxed both Roths. I do not have access to an HSA.

Probably higher than step 8.  As noted in that post,
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In the lists below, thinking "first your 457 (if you have one), then your 401k and/or 403b" wherever "401k" appears is likely correct -           
   unless your 457 fund options are significantly worse than those in the 401k/403b -         
   due to penalty-free access to 457 funds at retirement, even if younger than 59 1/2.

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The problem I have with this 457 option is that you can only change your contribution amount during open enrollment, leaving little flexibility to decrease contributions in an emergency, so I would not want to put a large portion of my income into it. My 403b is with Fidelity and has low ERs, so I am assuming the 457 would be the same. There is no company match on the 457.
Adjusting generic rules of thumb to fit individual situations is reasonable.  In your case, some split between the 457 (for retirement access) and the 403b (for contribution flexibility) seems fine.

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I am still dithering about whether to open a 529 for my son (currently 2). My state has no tax incentives for the 529 and I don't like the idea of the penalty. Also who knows what the higher education landscape will be like in 16 years? On the other hand, I would like to set aside some money that is "his". Separate taxable account maybe?
Maybe, but if one subscribes to "put on your own oxygen mask before assisting others," you should fund your own retirement before funding 529 or similar plans for children's college costs.

MrsWolfeRN

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Re: Investment order question
« Reply #2 on: April 30, 2017, 09:03:17 AM »
Thanks, I think I'm going to start with 5% of my salary in the 457, then go up from there each year if the investment options are as good as the 403. For some reason the open enrollment period for this is in May, when open enrollment for everything else is in November.

As far as the 529 goes I might start one with a couple thousand dollars, then add another thousand each year. We are expecting a second child so that will protect against over funding. Am I correct that 529 in the parents' name will count less against his financial aid than a UTMA?