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457b

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

    I have access and contribute to a nongovernmental 457b.  I have good vanguard index funds that fit into my AA well.  There is an annoying 40 basis point fee but it is not to onerous since my ER for the funds are only 4-7 basis points.  My distribution options are pretty good as well.  I can take it over pretty much as long as I want.  I have little worry about the financial stability of my institution.  We are a small community hospital but part of a larger network and growing well compared to our peers around the area.

    I contribute the full amount now and that is about 20-25% of my retirement contributions.  This will likely go down a little bit as I increase my taxable contributions.

    Even with all these good things how much of a percentage of your retirement funds do people have in 457 plans.  Does anyone not max out or stop contributing to 457s when they have the means to do so?

    I appreciate your comments/opinions/anecdotes

    Thanks

    #181551 Reply
    Avatar jhwkr542 
    Participant
    Status: Physician
    Posts: 1330
    Joined: 02/15/2016

    We max out my wife’s 457b and that probably amounts to 20% of our total retirement account contributions (401k + 403b + 457b + his/hers Roth IRA + MPP + HSA).  I think you have more about maximizing your dollar and less about the tax diversification. Would you pay top marginal tax rate in order to invest in a taxable account where you’ll pay tax on the earnings? No.  It makes more sense to convert 403b contributions to Roth contributions than to use potential 457b contributions for taxable account, but I wouldn’t do either in a high tax bracket mid-career.

    #181562 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8325
    Joined: 01/09/2016

    >95% of our clients who have access to a 457b contribute as much as they can afford. One careful consideration with a non-governmental 457b is the distribution requirement. A huge 457b with an immediate distribution or 5-year payout can be a horrible tax hit.

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #181563 Reply
    Lithium Lithium 
    Participant
    Status: Physician
    Posts: 1218
    Joined: 02/15/2016

    >95% of our clients who have access to a 457b contribute as much as they can afford. Do you have a Roth option? One careful consideration with a non-governmental 457b is the distribution requirement. A huge 457b with an immediate distribution or 5-year payout can be a horrible tax hit. In those cases, allocating part to Roth could be very wise. Doesn’t sound like that’s an issue for you, but this is for others reading, also.

    Click to expand…

    I didn’t think non-governmental 457b’s allowed Roth contributions?

    https://www.irs.gov/retirement-plans/comparison-of-tax-exempt-457b-plans-and-governmental-457b-plans

    #181570 Reply
    Avatar familydocPA 
    Participant
    Status: Physician
    Posts: 67
    Joined: 03/03/2017

    I could have written almost the exact same post as the OP, except that I don’t have the 40bp fee that they do.

    Sometimes I do worry about not having a “plan” for that money, but my distribution options are great so I like the flexibility. Tentatively I have been calling it my “sabbatical” fund, so that if I wanted to take a mini-retirement at some point I could draw a salary if needed.

    #181579 Reply
    jfoxcpacfp jfoxcpacfp 
    Moderator
    Status: Financial Advisor, Accountant, Small Business Owner
    Posts: 8325
    Joined: 01/09/2016

    >95% of our clients who have access to a 457b contribute as much as they can afford. Do you have a Roth option? One careful consideration with a non-governmental 457b is the distribution requirement. A huge 457b with an immediate distribution or 5-year payout can be a horrible tax hit. In those cases, allocating part to Roth could be very wise. Doesn’t sound like that’s an issue for you, but this is for others reading, also.

    Click to expand…

    I didn’t think non-governmental 457b’s allowed Roth contributions?

    https://www.irs.gov/retirement-plans/comparison-of-tax-exempt-457b-plans-and-governmental-457b-plans

    Click to expand…

    YOU ARE RIGHT, I totally blew that one! Will correct my answer and thank you for standing in for @spiritrider!

    Johanna Fox Turner, CPA, CFP: I am not your financial advisor; any responses are for general purposes only
    http://www.fox-cpas.com/for-doctors-only ~ [email protected]

    #181606 Reply
    Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I think it would be a good option if I do retire early.  I do not have plans to but I could see a possibility of retiring in my mid/later 50s and the 457 would cover expenses for a good chunk of time allowing the other accounts to continue to grow untouched.

    The most likely issue I see is if a job change screws things up.  Right now I have no reason to expect leaving but a lot can change over 20-30 years.

    #181619 Reply
    Liked by GXA
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 370
    Joined: 02/22/2016

    I also have a non-governmental 457b that I have been contributing to for the last 4 years. It currently represents between 15-20% of my total portfolio, although I expect that percentage to drop some as my taxable investments increase. I have maxed out the 457b for 4 years now and plan to do so going forward for the tax benefits. Mine has a very low ER S&P 500 fund, and is all I am putting in that account. It also has great distribution options (over as many years as I would like after departure).

    My goal, if I stay here forever, is to use it as my early retirement account. Depending on how large it is I will spread out the distributions over the years needed to bridge to Social Security (if it exists), and RMDs. If I don’t stay here forever then I may use it for living expenses for a year or two as I find my next spot.

    To me, the current tax benefits are too great to give up and contribute more to a taxable account instead. I also like the ability to access the funds fairly easily once I depart from my employer.

    #181723 Reply
    Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I also have a non-governmental 457b that I have been contributing to for the last 4 years. It currently represents between 15-20% of my total portfolio, although I expect that percentage to drop some as my taxable investments increase. I have maxed out the 457b for 4 years now and plan to do so going forward for the tax benefits. Mine has a very low ER S&P 500 fund, and is all I am putting in that account. It also has great distribution options (over as many years as I would like after departure).

    My goal, if I stay here forever, is to use it as my early retirement account. Depending on how large it is I will spread out the distributions over the years needed to bridge to Social Security (if it exists), and RMDs. If I don’t stay here forever then I may use it for living expenses for a year or two as I find my next spot.

    To me, the current tax benefits are too great to give up and contribute more to a taxable account instead. I also like the ability to access the funds fairly easily once I depart from my employer.

    Click to expand…

    Is your username derived from a hairdryer?

    #181737 Reply
    Liked by MaxPower
    Avatar MaxPower 
    Participant
    Status: Physician
    Posts: 370
    Joined: 02/22/2016

    I also have a non-governmental 457b that I have been contributing to for the last 4 years. It currently represents between 15-20% of my total portfolio, although I expect that percentage to drop some as my taxable investments increase. I have maxed out the 457b for 4 years now and plan to do so going forward for the tax benefits. Mine has a very low ER S&P 500 fund, and is all I am putting in that account. It also has great distribution options (over as many years as I would like after departure).

    My goal, if I stay here forever, is to use it as my early retirement account. Depending on how large it is I will spread out the distributions over the years needed to bridge to Social Security (if it exists), and RMDs. If I don’t stay here forever then I may use it for living expenses for a year or two as I find my next spot.

    To me, the current tax benefits are too great to give up and contribute more to a taxable account instead. I also like the ability to access the funds fairly easily once I depart from my employer.

    Click to expand…

    Is your username derived from a hairdryer?

    Click to expand…

    In fact it is.  There’s the right way, the wrong way, and the Max Power way…

    #181808 Reply
    Liked by Zaphod, Peds, ENT Doc
    Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I also have a non-governmental 457b that I have been contributing to for the last 4 years. It currently represents between 15-20% of my total portfolio, although I expect that percentage to drop some as my taxable investments increase. I have maxed out the 457b for 4 years now and plan to do so going forward for the tax benefits. Mine has a very low ER S&P 500 fund, and is all I am putting in that account. It also has great distribution options (over as many years as I would like after departure).

    My goal, if I stay here forever, is to use it as my early retirement account. Depending on how large it is I will spread out the distributions over the years needed to bridge to Social Security (if it exists), and RMDs. If I don’t stay here forever then I may use it for living expenses for a year or two as I find my next spot.

    To me, the current tax benefits are too great to give up and contribute more to a taxable account instead. I also like the ability to access the funds fairly easily once I depart from my employer.

    Click to expand…

    Is your username derived from a hairdryer?

    Click to expand…

    In fact it is.  There’s the right way, the wrong way, and the Max Power way…

    Click to expand…

    Great old reference.  Back in the days when I used to watch that show.  I am glad I asked.

    #181892 Reply
    Liked by MaxPower
    wonka31 wonka31 
    Participant
    Status: Physician
    Posts: 712
    Joined: 03/24/2018

    I think it makes sense in the following scenario:

    1) Your hospital system is very stable

    2) You have been there for a bit, know the good and bad of your job and are going to stay there for a long time. (If this isn’t secured, the tax pill can be brutal)

    3) As JFox said, favorable distributions.

    4) You don’t have bad debt that needs to be paid off preferentially.

    5) You are willing to take a relatively small risk as this money is not yours.

    6) You believe that taxes in the future will be at or below the current tax structure.

    I was using mine and decided not to find this year. My main reason is I that I didn’t think the risk (although pretty small) was worse the $3k tax deduction.

    #181902 Reply
    Drop it into MD Drop it into MD 
    Participant
    Status: Physician
    Posts: 440
    Joined: 09/20/2018

    I think it makes sense in the following scenario:

    1) Your hospital system is very stable

    2) You have been there for a bit, know the good and bad of your job and are going to stay there for a long time. (If this isn’t secured, the tax pill can be brutal)

    3) As JFox said, favorable distributions.

    4) You don’t have bad debt that needs to be paid off preferentially.

    5) You are willing to take a relatively small risk as this money is not yours.

    6) You believe that taxes in the future will be at or below the current tax structure.

    I was using mine and decided not to find this year. My main reason is I that I didn’t think the risk (although pretty small) was worse the $3k tax deduction.

    Click to expand…

    Fully funded with a tax rate of 30% wouldn’t it be a savings of closer to 6K?

    #181923 Reply
    wonka31 wonka31 
    Participant
    Status: Physician
    Posts: 712
    Joined: 03/24/2018

    Yeah, meant to type 6 and not 3. My mistake.

    #181927 Reply
    Avatar newdoc2016 
    Participant
    Status: Physician
    Posts: 14
    Joined: 08/26/2018

    I think it makes sense in the following scenario:

    1) Your hospital system is very stable

    2) You have been there for a bit, know the good and bad of your job and are going to stay there for a long time. (If this isn’t secured, the tax pill can be brutal)

    3) As JFox said, favorable distributions.

    4) You don’t have bad debt that needs to be paid off preferentially.

    5) You are willing to take a relatively small risk as this money is not yours.

    6) You believe that taxes in the future will be at or below the current tax structure.

    I was using mine and decided not to find this year. My main reason is I that I didn’t think the risk (although pretty small) was worse the $3k tax deduction.

    Click to expand…

    1. I believe mine is

    2. I’ve been at my current position (also my first out of residency) for over 2 years now. I like it, probably going to stay long term.

    3. Per my retirement specialists, distributions can be spread out over 5 years, 10 years, or taken as a lump sum. Obviously going to go with 10 years, which is reasonable in my opinion.

    4. Just student loans, which will be paid off within 5 years.

    5. I am.

    6. I hope.

    #182219 Reply

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