Does contributing to 457b make sense in my situation?

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Topic Author
katnok
Posts: 171
Joined: Fri Nov 11, 2011 8:36 pm

Does contributing to 457b make sense in my situation?

Post by katnok »

Hi all.

My employer offers both 403b and 457b (non-governmental), but all these years I have maxed out the former but not contributed any to the latter.The reason for not contributing to 457 is that I may (not certain but quite likely) move from my current job in about 2-3 yrs. If the future employer doesnt have 457 or doesnt allow roll over, then I will need to take the money from 457, which will be taxed as ordinary income. My current marginal tax rate is 28%, so I will pay at least this much in fed taxes at the time of distribution.

Are there any reasons to contribute to 457b in my situation?

Thank you.
Twins Fan
Posts: 2775
Joined: Fri Mar 08, 2013 1:02 pm

Re: Does contributing to 457b make sense in my situation?

Post by Twins Fan »

I have a government 457b and I'm all for those. :D Not much help, huh?

I am no expert, but from the little I've read about the non-government 457b with the different rules and all, they would scare me. You have not contributed to it in the past and you are likely to leave the employer in a couple years... I say, keep it simple and don't start now.

Others will hopefully know more than I and say, yes or no.
Ostentatious
Posts: 274
Joined: Fri Aug 15, 2014 6:34 pm

Re: Does contributing to 457b make sense in my situation?

Post by Ostentatious »

My spouse has 457b non governmental at work but she has not contributed before because it is clearly stated that she may lose the money in the event that the company goes out of business and not able to pay creditors. That sound pretty scary.
Topic Author
katnok
Posts: 171
Joined: Fri Nov 11, 2011 8:36 pm

Re: Does contributing to 457b make sense in my situation?

Post by katnok »

I am not worried about the funds in 457 being accessible to creditors as the odds of that situation arising are extremely low given my time horizon with this employer.
thewizzer
Posts: 346
Joined: Sun Aug 19, 2012 10:11 pm

Re: Does contributing to 457b make sense in my situation?

Post by thewizzer »

In your case, I don't think it makes any sense to contribute. As you stated, you cannot rollover a non-governmental 457(b) to an IRA. It would only be allowed to be rolled over into another 457(b) plan. But since you don't know where you will end up working, you can't say for sure whether or not they would even offer a 457(b) plan. I vote for finding somewhere else to put some money.

http://www.457bwise.com/faqs/

Private plans — Non-governmental tax-exempt entity plans.
457(b) can be moved to another tax-exempt organization's 457(b) if the plan accepts such transfers, but it may not be rolled into an IRA or another type of employer-sponsored retirement plan.
Beth*
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Joined: Wed Apr 30, 2014 9:57 am

Re: Does contributing to 457b make sense in my situation?

Post by Beth* »

You could end up deferring the taxes now while you are in the 28 percent tax bracket and then find yourself required to cash in the 457(b) plan while you are in the same or a higher tax bracket. The extra income could push you into AMT territory or a higher tax bracket. I don't see any advantage of tax deferring this money if you know that you will probably need to access it in a few years. If it were me, I would put the extra money into after tax accounts where any long-term capital gains will be taxed at a lower rate.
Laura
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Joined: Mon Feb 19, 2007 7:40 pm

Re: Does contributing to 457b make sense in my situation?

Post by Laura »

I see no advantage so contributing to the 457b in your situation. The downside risk is too great for only a small upside benefit.

Laura
The views presented are my own and not necessarily those of the Department of State or the U.S. Government.
Topic Author
katnok
Posts: 171
Joined: Fri Nov 11, 2011 8:36 pm

Re: Does contributing to 457b make sense in my situation?

Post by katnok »

Thanks for the replies. I will stay away from 457 at least for now.
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neurosphere
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Re: Does contributing to 457b make sense in my situation?

Post by neurosphere »

katnok wrote:Thanks for the replies. I will stay away from 457 at least for now.
Hi katnok. I've been reading all of the non-gov 457b threads with interest, because I'm contemplating a job change where I would have access to one for the first time. For many years I have counselled friends and clients to avoid these. Now, in a situation where I might (for the first time) personally have access to a non-gov plan, I see the allure. It certainly FEELS like "leaving money on the table" not to take advantage of the plan. I can convince myself that the risk is so low, that it's worth the risk. But it's nearly impossible to quantify the risk, because that involves predicting the future in ways similar to predicting the long-term outcome a particular stock. I.e., any individual stock can go belly up in the next 5, 10, 30 years, sometimes quite unpredictably. The same can be said of any employer. So I would advise not putting more than a few percent of net worth in the 457b. However, at that point, the amount in the 457 that is tax deferred, relative to your total portfolio, is small, and not worth the risk at all, and thus the advice to contribute "a few percent at most" is effectively "zero percent".

All of the suggestions so far have been good ones: savings bonds, pay down debt/mortgage, 529 plans, municipal bonds, taxable investing, etc. I think I would prefer any of these over a non-governmental 457b.

Neurosphere
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".
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