Roth in 401k or government 457?

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Roth in 401k or government 457?

Postby mx711yam » Fri May 10, 2013 1:59 pm

I am offered both plans at my job and each of them offers the Roth and traditional. Unfortunately there is a monthly fees assessed to each account type so I was wanting to split my contributions in half between the two plans but don't know which to make a Roth and which to make traditional.
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Re: Roth in 401k or government 457?

Postby Default User BR » Fri May 10, 2013 5:55 pm

What is your marginal bracket, fed and state? How much are you contributing total?


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Re: Roth in 401k or government 457?

Postby mx711yam » Fri May 10, 2013 6:05 pm

25% federal 0% state. Maxing Roth iras for my wife and me and contribute 15% to these plans
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Re: Roth in 401k or government 457?

Postby retiredjg » Fri May 10, 2013 6:09 pm

I'm not sure I would make either of them Roth in the 25% bracket. But we really don't know enough to have a valid opinion.

For example, how much is 15%? Is 15% going to each plan or split between the plans? Do you expect your salary to go up considerably (moving up tax brackets) in a fairly quick fashion?
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Re: Roth in 401k or government 457?

Postby mx711yam » Fri May 10, 2013 6:47 pm

15% is combined among both and no I won't be moving up financially, i'm in the government and don't plan on promoting so i'm pretty topped out.
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Re: Roth in 401k or government 457?

Postby retiredjg » Fri May 10, 2013 7:55 pm

Do you know your tax bracket? If not, compare your taxable income (line 43 on Form 1040) to this chart.

Is the 15% more or less than the $11k you are putting into Roth IRAs?
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Re: Roth in 401k or government 457?

Postby mx711yam » Fri May 10, 2013 9:03 pm

My tax bracket is 25% federal. And 15% is slightly more than the 11,000 Roth iras
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Re: Roth in 401k or government 457?

Postby retiredjg » Fri May 10, 2013 9:15 pm

mx711yam wrote:My tax bracket is 25% federal. And 15% is slightly more than the 11,000 Roth iras

In that case, I say NO Roth 401k or 457. In fact, I wonder if you should be putting more into traditional 401k or 457 and less into Roth IRA. Even if you have a pension coming.

You might consider presenting your whole picture for suggestions. See the link at the bottom of this message for how to do that.
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Re: Roth in 401k or government 457?

Postby mx711yam » Fri May 10, 2013 9:20 pm

I have posted my whole portfolio but just found out about the 457 option. Should I just copy and paste original message that showed assets?

So should I even do a457 or stick with 401k
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Re: Roth in 401k or government 457?

Postby retiredjg » Fri May 10, 2013 9:31 pm

mx711yam wrote:I have posted my whole portfolio but just found out about the 457 option. Should I just copy and paste original message that showed assets?

So should I even do a457 or stick with 401k

Ok. I found where you posted the whole portfolio. I'll have to take a look at it tomorrow though.

Does the 457 offer the same funds as the 401k or different funds? In other words, could your 457 be better than your 401k? I had thought your real question was whether Roth 401k/457 might be better for you than traditional 401k/457.

Will you have a pension coming?
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Re: Roth in 401k or government 457?

Postby Peter Foley » Fri May 10, 2013 9:45 pm

One consideration that favors a government 457 plan is the ability to take money from the plan without penalty should you decide to retire early. Both my wife and I had 457 plan options and we both used them. The fees in our plans were quite reasonable.

I retired a year ago in May. Because it was only a partial year of work for tax purposes, I took advantage of that lower tax year to fund a Roth 457. Because of income caps were not not able to contribute much to Roths over the years they were available.
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Re: Roth in 401k or government 457?

Postby mx711yam » Fri May 10, 2013 9:46 pm

They're the exact same funds for both plans. And I sure hope so but they're currently talking about reworking the pension to make us work 40 years instead of twenty to get it. In that case I will probably leave and go to another agency or the private sector.
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Re: Roth in 401k or government 457?

Postby retiredjg » Sat May 11, 2013 11:34 am

I looked at your other thread and here's how I see your situation. Remember that some of this is based on speculation about what will happen in the future.

Many people in the 25% tax bracket retire and find themselves in the 15% tax bracket. For those people, it is probably better to take money out of a 401k/457/IRA at 15% in retirement than to pay 25% now to get the money into Roth status. For these people, it is often advised to use traditional 401k and Roth IRA which will give them some of both types of assets, but usually more in traditional than Roth.

You, however, have a pension. Or might have a pension. You are more likely to retire in the 25% bracket than someone without a pension. Obviously, all this depends on your final salary (at the top of the 25% bracket, near the center, near the bottom?), how large your pension will be, and whether there will be SS in addition to the pension. But just as a general statement, you are more likely than a person without a pension to retire in the same bracket you finish work in. For you, paying 25% now to get money into Roth status is the same as paying 25% later to take money out of a 401k/457/IRA. This would argue for putting more money into Roth status and less into traditional status than someone without a pension.

However, since we don't know the future I would not go more than half Roth and half traditional (meaning overall in all the accounts) at this point in your life. That's just a number that feels comfortable to me - it is not any sort of magic number. You'll have to find your own comfortable number understanding that life never presents itself like you think it will. Job changes, accidents, illness, kids, changes in tax law, etc. all might happen so it is best to expect the unknown and keep as much flexibility in your financial life as you can. That's why half and half fees good to me.

As for using the 401k or the 457, since they are identical, it does not matter which you use. The 457 money will be available on leaving that job whether you are 59.5 or not. The 401k money is available, but you have to jump through some not-too-difficult hoops to use it if you retire "early".

The nice thing about having both plans available is if your wife moved to a job with a lousy 401k you could put all your retirement money into your 2 plans and not use hers at all (or only use it up to the match). Not much of an issue now since she has two really good choice in her plan (500 Index and Inflation Protected bond fund).

If you decide to put some of your 401k/457 money into Roth status, there might be some differences in how the money rolls out to Roth IRA. I believe the Roth 401k rolling to Roth IRA would have a 5 year clock on it if you are not 59.5 years old. I do not know if rolling Roth 457 to Roth IRA would have a 5 year clock since that money does not have a 59.5 year old age requirement to it. This might be a reason to prefer the 457b. This is probably a question for a tax expert. You might pm Alan S and ask him. Or maybe Peter Foley rolled his Roth 457 to Roth IRA and can tell us.
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Re: Roth in 401k or government 457?

Postby mx711yam » Sat May 11, 2013 1:18 pm

Thank you for the response, very informative. I am currently at the top of the 25% tax bracket and will probably be right at the bottom of it with pension. So 50/50 split sounds good to me.

So on my plans they charge a monthly fee per plan per type. the max fee its 15 bucks a month after you have 64000 invested. So i'm trying to limit the investment to not pay these fees. Should I do a traditional 401k and a Roth 457? or vice versa? I don't want to do 50/50 in both type of accounts because then I will have four maintenance fees a month instead of two
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Re: Roth in 401k or government 457?

Postby retiredjg » Sat May 11, 2013 8:44 pm

mx711yam wrote:So on my plans they charge a monthly fee per plan per type. the max fee its 15 bucks a month after you have 64000 invested. So i'm trying to limit the investment to not pay these fees. Should I do a traditional 401k and a Roth 457? or vice versa? I don't want to do 50/50 in both type of accounts because then I will have four maintenance fees a month instead of two

I'm not following what you are saying.

If you are only saving $12k or so each year, why do you need to use both the 401k and the 457? It can all go into one or the other. If you want to have money in both types of accounts, use one this year and the other next year. And so on. Edit: it just occurred to me this will not eliminate the additional $180 a year which seems pretty steep to me.

Also, it seems unlikely to me they will charge you $15 a month for traditional 401k and another $15 a month for Roth 401k. They are both the same 401k even though the money is accounted for separately. I could be wrong, but paying $15 twice for one 401k doesn't sound right to me.

To make $180 a year worth paying, you need to be saving a lot in the second account.

Maybe I misunderstood what you said earlier about how much you are saving?
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Re: Roth in 401k or government 457?

Postby mx711yam » Sun May 12, 2013 12:09 am

Yes believe it or not the Roth and traditional are both charged separately. The reason I was thinking of a 457 was because I plan on retiring well before 59 so I thought I could actually get my money out with a457. But I don't know if its worth the extra charge
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Re: Roth in 401k or government 457?

Postby retiredjg » Mon May 13, 2013 10:16 am

In that case, I would not put any money in the 457 (to avoid the additional $180 a year) and I would not put any money into Roth 401k (again, to avoid the additional $180 a year). It seems to me the additional fees, especially for a very small account invested, would make those options a poor idea*. The fees would overwhelm the benefits.

You can achieve much of what you want by using traditional 401ks and Roth IRAs. That is not so far from half traditional and half Roth. Once you are saving more and can completely fill your 401ks, opening the 457 becomes a better option and it could be Roth if you want.

Does your wife have the option of Roth 401k? If so, you could use a little of that.

I do see that you said the maximum fee is $15 a month. Just how small could the fee be?

If you retire in or after the year in which you turn 55, your 401k money is available with no hoops to jump through (but you can't roll it to IRA without losing that option). If you retire at any time, your 401k and IRA money is available if you take Substantially Equal Periodic Payments (SEPP). My understanding is that this is a hoop to jump through, but quite an easy one. So don't take on extra fees just because you think you might retire early and need the money. The government does not hold your money hostage if you retire before 59.5.
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Re: Roth in 401k or government 457?

Postby grabiner » Mon May 13, 2013 10:11 pm

mx711yam wrote:I am offered both plans at my job and each of them offers the Roth and traditional. Unfortunately there is a monthly fees assessed to each account type so I was wanting to split my contributions in half between the two plans but don't know which to make a Roth and which to make traditional.


Do you get a match? If you do, the match is in the traditional account, so you are going to pay that fee anyway.
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