Maxed Out 403b/457 Now What?

[Peter Parker]

Folks--

I could use your input.  Both my wife and I have maxed out 403b/457 accounts.  We are contributing $72K per year (24K  to wife's 403b; 24K wife's 457; 24K to my 457--no 403b available for me).  We have some room to invest some more--but what savings vehicle should I put it in?

Also, when we retire (in about 4 years), is there any way to move this money from these DC accounts to a Roth?  We are not going to need the money for our month to month expenses--but we will be drawing on it to buy cars (when needed), help our kids (when we feel like it), or travel (which we hope to do often).  Any suggestions? 

Thanks!

[bacchi]

Oh, I'd love to have a 457.

If you can't fund an HSA, I'd just use taxable. You'll need to keep your income low to use the Roth conversion ladder successfully. The 457 is a great vehicle but it produces earned income and doesn't play well with Roth conversions.

[terran]

Well done!

The 457s allow withdrawals at any age without penalty, so as long as your employer's allow partial withdrawals I would leave them where they are and withdraw anything you want to actually spend from there.

The 403b I would roll over into an IRA once you retire and then start converting to roth.

Between your 457 withdrawals and traditional to roth conversions you should certainly use up the standard deduction and personal exemptions (no tax on that), and probably the 10% bracket. Then for the 15% bracket you should consider what conversions you might want to make vs using the space for capital gains harvesting of any taxable account you have since that would be in the 0% capital gains bracket. If you have pensions that will of course take up some that space first.

You may decide you want to even go into the 25% bracket or beyond. Your goal should be to equalize your tax bracket throughout retirement such that forced withdrawals in the form of Require Minimum Distributions (RMDs) once you're 70.5 don't push you into an even higher tax bracket.

Another complicating factor: if you expect to be on ACA marketplace health insurance you may or may not want to also manipulate your income to stay under certain other caps independent from tax brackets as the loss of subsidies can act as another form of tax. If this is the case you might choose to limit your withdrawals and conversions until you hit medicare age, but keep in mind that this will likely push you into a higher tax bracket later in life, so it's a tradeoff.

As far as what to do now, have you contributed to IRAs for your wife and you already? Since you must be over 50 given that you're making catch up contributions to the 403b and 457s that would be another $6000 each ($5500 regular plus $500 catchup). Depending on your MAGI (modified adjusted gross income) you may not be able to contribute to a deductible traditional IRA or to a roth IRA. If you can't do either you can look into a making a "backdoor roth" contribution.

Here are the income limits for make a deductible contribution: https://www.irs.gov/retirement-plans/plan-participant-employee/2016-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

Here are the income limits for making a direct roth contribution:https://www.irs.gov/retirement-plans/plan-participant-employee/amount-of-roth-ira-contributions-that-you-can-make-for-2016

If you already made IRA contributions and as bacchi mentioned, if you don't have an HSA, then go with a taxable brokerage account.

[ender]

What are your current assets?

How old are you?

[Peter Parker]

Thanks everyone for the responses and suggestions.  Always amazed at how great people are...Thank you!

I'll provide some more details (I was trying to keep it short) to help answer Ender's questions and see if any of this additional info changes people's ideas as to what I can/should do  Again the original question was what to do now since I have maxed out tax deferred accounts (and make to much to fund a roth--and ways to avoid too much tax in retirement). 

Currently, my wife and I are 55/56.  We plan on retiring when our last child has graduated college in 4+ years.  We are paying for her college--thus the need to to keep working.  But for us, this is something we enjoy and want to do...Besides we did it for our two other children and need to be fair...:-0

We will both have PENSIONS when we retire.  We can almost cover basic expenses with one pension....and one suggestion from a retirement planner was to take a lump sum payment for my wife's pension (about 1.3M) and stick it in our 403b and draw off the 403b as needed and let it continue to grow.  What do you think of that?

Depending on health (currently very healthy) we plan on using 403b/457 money as a "bridge" to 70 at which time we draw social security which will be more than enough to cover basic expenses (plus extra).  We will then use 403b for gifts/trips/car/other big ticket items.

Current assets are 500K in 457/403b and home is worth 1M (but we have chosen to carry a 500K mortgage at 3.375%)

After our meeting with a retirement planner, we started getting really concerned about the tax load in retirement, so I was trying to figure out ways to reduce the tax burden.  Thus I was trying to figure out what to do with 403b/457 money to avoid taxes and not have to take the RMD, since we probably won't have monthly need to do so....

The retirement planner was a free of charge person available from my wife's employer.  He wasn't selling anything, but we are also not paying for extensive planning.  Thus his advice was not very detailed.

I look forward to your continued input!

[Pooplips]

So if I am reading this right you have 2 pensions (with 1 pension able to cover basic expenses), a million dollar house, 500k in tax defered accounts and are eligable to collect SS? Daaaaaaaaamn.

You have some serous first world problems.

I would probably cash out 1 pension and use the other for bare bones expenses. Maybe even look into survior benefites for the pension you keep. You would hate to have one of you die early and lose all that money.

Convert as much as possible to a Roth before Min distributions kick in.

Have you thought about having one person retire now and start converting/contributing right now?

[Peter Parker]

So if I am reading this right you have 2 pensions (with 1 pension able to cover basic expenses), a million dollar house, 500k in tax defered accounts and are eligable to collect SS? Daaaaaaaaamn.

You have some serous first world problems.

I would probably cash out 1 pension and use the other for bare bones expenses. Maybe even look into survior benefites for the pension you keep. You would hate to have one of you die early and lose all that money.

Convert as much as possible to a Roth before Min distributions kick in.

Have you thought about having one person retire now and start converting/contributing right now?

Yeah.  I know we are very lucky with our First World Problems.  We are very grateful and are very concerned about our children (and younger folks).  The world isn't the same anymore.  But I think you young-farts are doing yourself a HUGE favor by following MMM and planning earlier.  I"m trying to get my kids started--And they ARE coming around.  Take it from an old-fart, I wish I had figured it out earlier....

Yes, survivor benefits for the one pension would be a good idea.

I know it sounds dumb, but wife and I made a pact that we'd retire together.  Plus the cost of college makes it nearly impossible to cash flow without the income.

Where can I get more info on Roth conversions/Backdoor Roth's?  Given our situation, what do you think about hiring a fee-based financial planner or tax attorney?

[ender]

A big and slightly morbid question you have is more, what do you want to happen to your assets when you die?


This might influence this a bit.

[Peter Parker]

A big and slightly morbid question you have is more, what do you want to happen to your assets when you die?


This might influence this a bit.

Hey, none of us are getting out of here alive....

So my wife and I plan on spending an awful lot on travel, while we can.  We'd also like to help out our kids--so far we are lucky in that they are not moochers and are very much looking to build their own lives, but we'd rather give them some of our money with warm hands, rather than cold...

But when we are gone, we will likely have some assets left over.  What remains will go to a few charities and the rest to our kids...

[TomTX]

If you can start drawing the pensions now, you appear to have zero need to keep working. Pay for college out of the second pension.

Beyond the first pension that covers your normal spending, you have:

Another big fat pension surplus to your needs.

A net worth of a million bucks, half liquid/semi-liquid.

At most around 15 years til you start drawing maxed out delayed Social Security.

Quit already. This isn't Bogleheads.

As an aside, liquidating/lump sum of the 2nd pension is the riskier plan, unless the pension is in jeopardy from something.

[Lski'stash]

I just want to save this in hopes that I reach your level of awesomeness one day.

Great work!