Author Topic: Is my 457 plan worth the higher fees?  (Read 2016 times)

MustardTiger

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Is my 457 plan worth the higher fees?
« on: December 06, 2014, 07:36:33 AM »
I have a question about where I should be putting my pre-tax investments each month.  Currently my wife has a Vanguard i401k with 100% going to VTSMX.  We could put 100% of our planned contributions in this account without reaching the maximum for the foreseeable future.

So is it worth it for me to put my contributions through this 457?  If you aren't aware this account is pre-tax and allows distributions after termination of employment, which seems perfect minus the higher fees.  I am 30 and tentatively plan to work until I am 45-50.

Fees of Service Plan Providers
JEM Resource Partners, TPA
$18.50 per participant per year
0.25% of assets, paid by the
participant

Wilmington Capital Trust,
Custodian/Trustee
0.10%, paid by participant

TCG Advisors, Investment Advisor
Sliding Scale (0.45% -0.25%),
currently 0.40%, paid by participant
ESC Region 10, Plan Coordinator
$0.10 per participant per month,
paid by participant

Other Fees
$30 Distribution Fee
$50 Loan Set up
All of the above paid by
participant

The investment options are fine, including vanguard index and various DFA funds. 

GGNoob

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Re: Is my 457 plan worth the higher fees?
« Reply #1 on: December 06, 2014, 08:47:04 AM »
Are those 3 different providers you get to choose from or do you pay fees to all of them in a single plan? (only asking because it seems like a lot of people get to choose their 457 provider...I only had one option myself)

If you pay all of those, it totals up to 0.75% of assets and $19.70 per year. 457 plans are amazing when planning to retire early, but I'm not sure it would be worth it in this case.

Do you plan to work at this job until you retire? You may consider saving enough into this plan to cover just 5 years worth of expenses (instead of a taxable account). You wouldn't need to put the money in there now since it would just get eaten alive with fees. You could just switch future contributions from your wife's 401k to the 457 as you get closer to retirement. Then when you retire, use your wife's 401k to set up a Roth IRA ladder (explained in this post, along with a lot of other good information).

For your wife's 401k, do you have other Vanguard funds available? I only ask because while VTSMX is a good fund, you may want to diversify with at least some international exposure.

MustardTiger

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Re: Is my 457 plan worth the higher fees?
« Reply #2 on: December 06, 2014, 08:58:06 AM »
Fee structure is a bit confusing but it seems that I would pay all of those fees.  I love my current job and have no plans on leaving as of now.  My wifes 401k is direct through Vanguard so any mutual funds are available, and I plan to consider proper allocation after I get a larger amount saved.

sol

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Re: Is my 457 plan worth the higher fees?
« Reply #3 on: December 06, 2014, 10:16:09 AM »
Without a little more information it's hard to say for sure, but probably not worth it right now.

Is there an employer match to either the 457 or the 401k?  That would change the calculus.

If your 401k has available contribution space, and you can afford to contribute more while staying under the limit, and the fees are better, and you're still a long a ways from retirement, then I'd stick with the 401k and maximize your return.  The primary advantage of the 457 is the penalty-free early withdrawal option, but you don't need that option right now so I wouldn't pay for it.

If you're going to eventually utilize the 5 year Roth IRA pipeline (by converting one year of expenses from your 401k to a traditional IRA to your Roth IRA, every year starting after the year you retire) then you really only need to have five years of expenses saved up in your 457, to live off while your Roth pipeline conversions "season" for the five years until they can be withdrawn without penalty.

So if you're at least 15 years away from retirement, and you will eventually need to save 5 years in the 457, I'd start contributing to the 457 five years before retirement if you're saving 50% of income, or 10 years before retirement if you're saving 25% of income.  If you're saving less than that then you're probably not 15 years away from retirement.

In either case, I'd avoid those 457 fees for at least the next five years.

MustardTiger

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Re: Is my 457 plan worth the higher fees?
« Reply #4 on: December 06, 2014, 10:20:58 AM »
Sounds good.  Neither my 403b or 457b have any employer match.  Delaying the 457 and using it as a way to save for a few years living expenses near retirement sounds like a great plan.