Ways to get spouse to contribute to 457 plan?

[bzzzt]

The back story.

We are very fortunate and this is not a post about complaining about how much we pay in taxes, but it has tax implications.

My wife and I have been going back and forth about contributing to her 457 plan for most of this year. She says she would rather have the money in the bank but I would love to get our taxable income down. The last couple years we've owed $3000-4000 to the IRS even with buying a house ($140k, 3%/15yr, barely any interest + should be paid off by Dec.), having a child, maxing my tIRA (no 401k for me). She has a pension offered through her job, so she can't do a tIRA but I do have a Roth for her. She already has a mandatory 11% contribution to her pension, so she doesn't want to "save too much for retirement when she could die tomorrow".

The new "problem" this year is her employer caught up on back pay that was owed and it will raise our taxable income by ~$15k and I've been working overtime this year to add to the 'stache, so our taxable is going up by $30-40k this year (estimated). This will likely put us above the tIRA phase out and we will lose another ~$1400 deduction. According to the W-4 worksheet, we should both be claiming Single/0/+$25 per week.

My wife is good about living within her means but she doesn't understand finance for the most part. I've taught her about interest/the dangers of CCs/etc, but I can see her eyes glaze over when I start talking about compounding, tax deferment, investing, inflation, etc. 

I'm mainly looking for ways to convince her to start contributing to her 457 plan since we don't "need" the money right now. Come December we will literally have $0 debt (no mortgage/CCs/car payments/nothing). So, not deferring the max of our income right now is incredibly shortsighted, especially when the cash will sit in the local bank savings @ .25% interest.

Anyone have any magic bullets?

[nereo]

My wife is good about living within her means but she doesn't understand finance for the most part. I've taught her about interest/the dangers of CCs/etc, but I can see her eyes glaze over when I start talking about compounding, tax deferment, investing, inflation, etc. 

Sounds like you might be making it more complicated than it needs to be.  And that she simply has no interest in learning complex reasons.  Try making it as simple as possible.  "If we do this, we wind up with more money". 
For emphasis, make a very simple graph (two bars really) showing your net worth in 10 years without 457 contributions, and with contributions.

Sometimes the reasons aren't as important as the result.

[MDM]

Have you done a cash flow analysis that shows how high you can go with retirement savings and still have enough to meet annual expenses?  That's more or less what the MMM case study spreadsheet was built for.  You could try that and see if it handles your situation, or roll your own if not.

[TomTX]

My wife and I have been going back and forth about contributing to her 457 plan for most of this year. She says she would rather have the money in the bank but I would love to get our taxable income down. The last couple years we've owed $3000-4000 to the IRS even with buying a house ($140k, 3%/15yr, barely any interest + should be paid off by Dec.), having a child, maxing my tIRA (no 401k for me). She has a pension offered through her job, so she can't do a tIRA but I do have a Roth for her. She already has a mandatory 11% contribution to her pension, so she doesn't want to "save too much for retirement when she could die tomorrow".

Well, that's incredibly selfish.  "Party today and leave nothing for my widower and child."

Right?

I doubt she meant it that way, but that's how I'm reading it.

If you guys have more cash coming in than you need today for a comfortable life, you should be stashing it away so that you can have a long, safe, comfortable retirement.

If you all die early - who cares? You're dead. You spent enough money to live comfortably.  Whether you had a billion dollars in the bank, or owed millions - you're DEAD. Other than leaving assets for people you care about to make THEIR lives tolerable - it just does not matter to you anymore.

So plan for LIVING. Plan for both of you living to be 100+ years old.

[mrshudson]

If you guys have more cash coming in than you need today for a comfortable life, you should be stashing it away so that you can have a long, safe, comfortable retirement.

This is beautiful and elegant. You got to sell T shirts with that caption!

[bzzzt]

Sounds like you might be making it more complicated than it needs to be.  And that she simply has no interest in learning complex reasons.  Try making it as simple as possible.  "If we do this, we wind up with more money". 
For emphasis, make a very simple graph (two bars really) showing your net worth in 10 years without 457 contributions, and with contributions.

Sometimes the reasons aren't as important as the result.

I started with simple and have worked towards more complex topics, but I still can't make her understand. I didn't take the time to understand what it was when she first started the job, so I said "No, don't do that". Now she uses that against me in discussions. Honestly, I knew nothing about money back then and it was stupid.

She now thinks taxes are something you should have an accountant do. I have actually agreed to have someone prepare our taxes this year because she doesn't believe I'm doing them correctly since "Everyone else I work with gets money back and we end up owing!"

Have you done a cash flow analysis that shows how high you can go with retirement savings and still have enough to meet annual expenses? 

"There's too much going on here. I don't have time to figure this out."

When I try to explain, she gets defensive. "Do you think I'm stupid?"

If you guys have more cash coming in than you need today for a comfortable life, you should be stashing it away so that you can have a long, safe, comfortable retirement.

If you all die early - who cares? You're dead. You spent enough money to live comfortably.  Whether you had a billion dollars in the bank, or owed millions - you're DEAD. Other than leaving assets for people you care about to make THEIR lives tolerable - it just does not matter to you anymore.

So plan for LIVING. Plan for both of you living to be 100+ years old.

We both agree that we should stash cash, but she doesn't track her spending or expenses. I guess the hardest part of this is due to not joining our finances. I was making almost double what she was making when we married. I didn't like the idea of joint finances because I didn't want her be able to tell me to quit my (admittedly) expensive hobby for things like cars, furniture, and a McMansion.

It's now biting me in the ass.

[johnny847]

I honestly think it's not that she can't understand, it's that she doesn't want to.

• You said her eyes glaze over when you start to explain investments and taxes, so she clearly doesn't understand these things, but then gets defensive when you try to explain them
• She uses what you said earlier, when you didn't know much about money, against you, instead of using actual reasons, such as yeah but I'm afraid of locking up my money (which isn't the best of reasons, but it's at least an attempt at logic)
• I'm guessing you've explained that getting back money from the IRS is like giving them an interest free loan, but she still thinks owing money when filing taxes is wrong

Many people would prefer to believe what they want to believe.
If this is really what is happening, then I don't think you will have much luck persuading her to contribute.

However, I do have on more point you can try - she can withdraw from her 457b without penalty the moment she leaves her current employer. Hence, it doesn't lock money away for the job loss scenario.

[forummm]

I didn't take the time to understand what it was when she first started the job, so I said "No, don't do that". Now she uses that against me in discussions. Honestly, I knew nothing about money back then and it was stupid.

Tell her that you have better information now and you made the wrong call at that time because you didn't know better. But now you've been doing all this research and it's going to save you lots of money.

I have actually agreed to have someone prepare our taxes this year because she doesn't believe I'm doing them correctly since "Everyone else I work with gets money back and we end up owing!"

When I try to explain, she gets defensive. "Do you think I'm stupid?"

I'm not sure how you're delivering the info, and we are only hearing your side of things. But she sounds non-financially inclined.

Maybe do this:
Scenario 1 (status quo): Total savings for 2015 is $XXX
Scenario 2 (put $18k in 457): Total savings for 2015 is $XXX + $5,400 (457 tax savings) + $3,300 (IRA tax savings) assuming 30% state+federal tax bracket.

Tell her you get $8,700 in lower taxes by contributing to the 457, and will get a huge check with your tax return. This is one way how her friends might be getting money back on their taxes.

And the 457 account is still your money. You don't need to keep it in that account until you're 65. You can tap it at any time (I think you have to leave that job first but not sure). Now you should absolutely NOT tap it until you're retired and in a lower tax bracket. But letting her know this option exists--and that it's really just cash in the bank, may alleviate some fears.

[BigRed]

There's a lot of negative responses here on your wife's reaction, but my guess is that you've all of a sudden started haranguing her to up her 457 and she's wondering, "WTF?"  Other than saying, "this is the right thing to do, I read about it," what have you done to convince her that it will better achieve some goal she has and that you have the credibility to make this sort of a change for her.  If you want her to move past simple heuristics (bank account balance, don't change things, refunds are good) you are going to need to give her some reason to spend time and energy thinking about this, and you need to use language that shows you understand what her financial goals are.

Your hints at your financial past are making me wonder if she doesn't think you have financial credibility - writing large checks at tax time, separated finances to make sure you could spend lavishly on hobbies, and admission that you've made a major u-turn on the 457's.  Yes, owing at tax time isn't so bad, but owing thousands isn't exactly an indication you're on top of things either.

Also, saving money in a 457 isn't saving on taxes - it's just deferring them.  That's probably wise in the long run, because of marginal vs. effective tax rates, but it isn't a guarantee.  Doing what forummm says and comparing pre-tax and post-tax numbers isn't exactly honest unless you have an actual plan to keep post-retirement spending low enough to make your effective tax rate 0%.