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457 vs taxable account

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  • Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    Hello WCI community,

    I have the ability to invest through my hospitals non governmental 457 account.  I understand the risk of solvency of the institution so lets put that aside for now because there is no way to know.  My question focus is how much better is using the 457 vs putting the same after tax  amount into my brokerage account?

    My 457 has limited investment choices obviously.  However luckily it has the Vanguard 500 index, mid cap index and small cap index.  Everything else has an ER over 0.6.  No self directed option.  (I am working on my HR)  Using the fund cost 40 basis points yearly!  ouch!

    Other useful information I live in NYS so large state taxes.  And I am in the 24% federal bracket.

    Basically is the charge for using the fund doing more harm then taxes would be?  If they numbers are close I would avoid the solvency rick and limited fund choices but if the tax benefits far outweigh then I guess I am stuck using the 457.

    Thank you for helping me sort this out.

    #152657 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1331
    Joined: 02/15/2016

    My initial knee jerk reaction is to use the 457b. You’re comparing 0.40% to 24%+NY tax. That expense ratio really isn’t that bad to use the s&p500 fund. Just rebalance using funds from other accounts.

    Do you know the distribution options? Are you planning on working there for a while?

    #152669 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4671
    Joined: 01/08/2016

    No question that it beats out taxable, that’s not the problem. What are the distribution options?

    #152678 Reply
    Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I also got lucky with the distribution options.  I get to take it over up to 20 years.  And I checked it is 20 years from when I start drawing not when I leave the job.  Hopefully I will be in this job until I retire (~25 years)

    #152680 Reply
    Avatar Peds 
    Moderator
    Status: Physician
    Posts: 4671
    Joined: 01/08/2016

    Then sounds good.

    #152681 Reply

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