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Roth 457 plan–could I be case of an exception?

Home Asset Protection Roth 457 plan–could I be case of an exception?

  • Avatar Psyched 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/03/2016

    I am probably fretting too much over this since I am only on my second year as a full employee at my state job that offers a traditional and roth 457 plan, or mix if you choose.

     

    Max contributions are $19k this year.I also have 6% of my pay automatically put aside for state retirement/pension fund and am vested after 5 years. Unfortunately no other ways to contribute to retirement substantially at my work and I am also investing a good amount in my Vanguard Total Stock Market index fund to reach my savings rate (20% pre tax) every year.

     

    At this point my husband has 1.4 years of fellowship left so I am the primary breadwinner with our household income set to double starting mid-late 2020 from almost 300k to 500-600k most likely. We are 35 and have zero debt (paid off $220k in student loans while not even working full time and taking 2 long maternity leaves) and have $350k or so in retirement right now.

     

    Given that we are not at peak earning years and income is set to increase, I am wondering if I should utilize my 457 as a roth, traditional, or mix of both, and if that needs to change once our income increases….????? I am holding on to this job as long as possible given the lifestyle to income ratio for me, lol

     

    #197778 Reply
    Avatar JBME 
    Participant
    Status: Spouse
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    Joined: 03/26/2018

    hopefully you’re also doing a backdoor Roth IRA for both you and your husband.

    Something is confusing. You said you maxed $19k in contributions this year. Is that to your 457? You don’t also have access to a 401k or 403b? That’s a bit weird…most people have access to a 401k/403b before they have a 457. The former two are much more common.

    In your case I would seriously consider the Roth option for your 457. Do you live in a state with income tax? If you don’t, or it’s low (5% or less), given you’re in the 24% federal bracket, which is probably going to be historically low, I’d do Roth in the 457 this year only. If you have a 401k or 403b with a roth option I’d roth there too. Then tax-deferred in 2020 and going forward given your HHI. If you’re 35 with no debt and already $350k in retirement accounts, you’re killing it.

    #197784 Reply
    Avatar DCdoc 
    Participant
    Status: Physician
    Posts: 327
    Joined: 06/14/2016

    The MFJ jump from 24% to 32% is fairly big.  That begins at 315k.  Remember when you’re talking about pre-tax vs Roth, it’s the marginal tax bracket money you are saving, or paying.  I would likely go Roth at 24% but traditional at 32% marginal.  Will you be above or below 315k?

    #197786 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3033
    Joined: 01/08/2016
    Earnest refinancing bonus
    500-600k most likely.

    Click to expand…

    i think Roth is probably a fine bet.

    with that much money and 30 years to go till full retirement i dont think it really matters….

    #197788 Reply
    Liked by q-school
    Avatar Psyched 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/03/2016

    We will be below 315K combined this year but not starting in 2020.

     

    For me individually, my salary is 231k and I don’t see that changing any time soon.

    #197791 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 338
    Joined: 02/11/2019

    Rarely do I agree that roth is the way to go but until your spouse starts working I think it would be good for you.  The only issue is stated above.  If you are into the 32% bracket then I would continue traditional.

    If you have low spending and plan early retirement then traditional would also be better.

    If you are going to work until 70 and have 10MM in tax deferred then Roth would be better.

    “Never let your sense of morals prevent you from doing what is right.”

    #197793 Reply
    Avatar Psyched 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/03/2016

    hopefully you’re also doing a backdoor Roth IRA for both you and your husband.

    Something is confusing. You said you maxed $19k in contributions this year. Is that to your 457? You don’t also have access to a 401k or 403b? That’s a bit weird…most people have access to a 401k/403b before they have a 457. The former two are much more common.

    In your case I would seriously consider the Roth option for your 457. Do you live in a state with income tax? If you don’t, or it’s low (5% or less), given you’re in the 24% federal bracket, which is probably going to be historically low, I’d do Roth in the 457 this year only. If you have a 401k or 403b with a roth option I’d roth there too. Then tax-deferred in 2020 and going forward given your HHI. If you’re 35 with no debt and already $350k in retirement accounts, you’re killing it.

    Click to expand…

    Looking back I probably made several confusing statements  in this post so I apologize! The 19k is roth 457 contribution. I know it is super weird, but I do not have any retirement options outside of my 457 and my pension plan. I currently live in a state with a pretty low state income tax.

     

    On another note, I am still worried about “how I’m doing” overall because in my opinion I’m definitely not killing it, mostly because I don’t have a home yet due to moving for training so many times. I do have the cash to put down for a down payment for a physicians mortgage or traditional and a very high credit score, but no home equity.

     

     

    #197795 Reply
    q-school q-school 
    Participant
    Status: Physician
    Posts: 2192
    Joined: 05/07/2017

    you are definitely killing it.

    and the biggest risk to true financial independence is future health/ability to work, stable marriage, and then spending, rather than whether you roth or not.

    ps-you don’t need to think of whether you could be an exception.  you just need to avoid bonehead investment schemes and rash decisions.  conventional wisdom still applies to you, even at your income levels.  you can hedge your bets but ten years from now this will seem like a tiny decision.  you will have plenty of opportunities to invest–whether in taxable index funds, or bonds, or real estate, or other.

    congrats on the start you have made.  really impressive.  don’t sell yourself short.

    good luck

     

     

    #197804 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3033
    Joined: 01/08/2016
    mostly because I don’t have a home yet

    Click to expand…

    im sure many would trade you 350K in investments for a 350K house….

    #197813 Reply
    Liked by JBME
    Avatar JBME 
    Participant
    Status: Spouse
    Posts: 316
    Joined: 03/26/2018

    hopefully you’re also doing a backdoor Roth IRA for both you and your husband.

    Something is confusing. You said you maxed $19k in contributions this year. Is that to your 457? You don’t also have access to a 401k or 403b? That’s a bit weird…most people have access to a 401k/403b before they have a 457. The former two are much more common.

    In your case I would seriously consider the Roth option for your 457. Do you live in a state with income tax? If you don’t, or it’s low (5% or less), given you’re in the 24% federal bracket, which is probably going to be historically low, I’d do Roth in the 457 this year only. If you have a 401k or 403b with a roth option I’d roth there too. Then tax-deferred in 2020 and going forward given your HHI. If you’re 35 with no debt and already $350k in retirement accounts, you’re killing it.

    Click to expand…

    Looking back I probably made several confusing statements  in this post so I apologize! The 19k is roth 457 contribution. I know it is super weird, but I do not have any retirement options outside of my 457 and my pension plan. I currently live in a state with a pretty low state income tax.

     

    On another note, I am still worried about “how I’m doing” overall because in my opinion I’m definitely not killing it, mostly because I don’t have a home yet due to moving for training so many times. I do have the cash to put down for a down payment for a physicians mortgage or traditional and a very high credit score, but no home equity.

     

     

    Click to expand…

    Go with the Roth 457 this year and do traditional (you and your husband) starting in 2020 and going forward until you plan to retire. At your rate assuming only modest lifestyle inflation you’ll be FI in probably less than 10 years. You’re sufficiently under $315k that if you Roth this year you don’t have to be worried about being bumped into the 32% bracket. Like Peds said, this is going to seem very minor in a few years.

    Also, many people who are “killing it” are renting. Don’t think of not having a house as a negative. It locks a lot of your cash/equity into a single thing (i.e. not diversified). You should put off home buying until your husband has found a place he likes to work too and then buy with at least 20% down. If you plan to buy something that is no more than 2x your HHI, between your salary and husband’s you’ll have the 20% down payment saved up in about 5 months.

    #197814 Reply
    Avatar Psyched 
    Participant
    Status: Physician
    Posts: 40
    Joined: 02/03/2016

    Thank you so much for all of the replies!I will go ahead with Roth for now and re-evaluate once jobs/conditions change.

     

    I do think it is very difficult to gauge “how you’re doing” as a physician because the usual rules don’t apply with loans, starting work later in life, and a huge pay increase after residency. Most calculators out there say things like “have double your salary saved by age 30” or something, and this is just impossible to apply as a physician.

    #198087 Reply
    Lordosis Lordosis 
    Participant
    Status: Physician
    Posts: 338
    Joined: 02/11/2019

    Those are the aspects of our profession that make financial sites like this exist.  WCI did A post on that a long time ago.

     

    A Net Worth Rule of Thumb for Doctors

    “Never let your sense of morals prevent you from doing what is right.”

    #198104 Reply
    Avatar Peds 
    Participant
    Status: Physician
    Posts: 3033
    Joined: 01/08/2016
    Most calculators out there say things like “have double your salary saved by age 30” or something

    Click to expand…

    most of those calculators are at best…dumb.

    #198120 Reply
    DMFA DMFA 
    Moderator
    Status: Physician
    Posts: 2115
    Joined: 06/24/2016

    24% is kind of a toss-up for deciding Roth vs Traditional imo for qualified plans and 457(b) plans.  If you are in 24% this year and will likely end up with large pretax retirement account balances (i.e. if you will be in high brackets making tax-deferred contributions over the next many years, which you likely should), then I would strongly consider doing Roth 457(b).

    However, you may also have one or two qualified plans like 401(a) and/or 403(b) at your job.  Sometimes these are called “pensions” or “annuities” but are often in practice just like any 401(k) plan.  These plans may also be “defined benefit plans” or “cash balance plans” which are their own animal, or may further be a different type of government pension plan altogether.

    "I like money." - Frito Pendejo (Idiocracy)

    [Not a financial professional (yet), lawyer, or employee of The White Coat Investor]

    #198183 Reply
    The White Coat Investor The White Coat Investor 
    Keymaster
    Status: Physician
    Posts: 4084
    Joined: 05/13/2011

    I am probably fretting too much over this since I am only on my second year as a full employee at my state job that offers a traditional and roth 457 plan, or mix if you choose.

     

    Max contributions are $19k this year.I also have 6% of my pay automatically put aside for state retirement/pension fund and am vested after 5 years. Unfortunately no other ways to contribute to retirement substantially at my work and I am also investing a good amount in my Vanguard Total Stock Market index fund to reach my savings rate (20% pre tax) every year.

     

    At this point my husband has 1.4 years of fellowship left so I am the primary breadwinner with our household income set to double starting mid-late 2020 from almost 300k to 500-600k most likely. We are 35 and have zero debt (paid off $220k in student loans while not even working full time and taking 2 long maternity leaves) and have $350k or so in retirement right now.

     

    Given that we are not at peak earning years and income is set to increase, I am wondering if I should utilize my 457 as a roth, traditional, or mix of both, and if that needs to change once our income increases….????? I am holding on to this job as long as possible given the lifestyle to income ratio for me, lol

     

    Click to expand…

    I’d do Roth since you’re not yet at peak earnings.

    Site/Forum Owner, Emergency Physician, Blogger, and author of The White Coat Investor: A Doctor's Guide to Personal Finance and Investing
    Helping Those Who Wear The White Coat Get A "Fair Shake" on Wall Street since 2011

    #198214 Reply

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