457 vs Backdoor Roth

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PediDoc
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Joined: Sun Mar 11, 2018 10:31 am

457 vs Backdoor Roth

Post by PediDoc » Mon Mar 19, 2018 1:52 pm

Should I invest extra funds into a 457 plan or a backdoor Roth vs taxable brokerage account? I'm leaning toward diverting new investments toward the 457 account as it would lower my current taxable income and be available before age 60 if I choose to retire early. I know the correct answer would be to fully fund both a 457 and a backdoor Roth but which one would be a better choice alone?

retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: 457 vs Backdoor Roth

Post by retiredjg » Mon Mar 19, 2018 3:37 pm

There is no way to know the answer to this. Either choice would be right. One will lower your taxes now. The other will be tax free in later on and give you some tax diversification.



If you are in the top bracket and plan to retire early enough to do lots of Roth conversions, use the 457b. If you are in a middle bracket now, I'd put at least some money in Roth IRA (if you are willing to use the back door).

Edited: The 457b is only a good choice if it is governmental. If this is a non-governmental 457b, it might be Ok, it might not be OK. Even if you believe the company will survive for the long haul, that's a long time and the withdrawal options can be quite burdensome. Look into that before even considering the 457b.
Last edited by retiredjg on Mon Mar 19, 2018 4:16 pm, edited 1 time in total.

SleepKing
Posts: 245
Joined: Mon Mar 02, 2015 8:45 am

Re: 457 vs Backdoor Roth

Post by SleepKing » Mon Mar 19, 2018 3:45 pm

Is there a reason you could not do both if you feel they are excellent options for your situation?

I stopped contributing to my 457b a few years back due to: 1) worries with institutional solvency (457b RARELY can be made available to creditors) 2) portability issues should I change jobs. I invested in taxable account via total market index funds instead. As I get closer to retirement I may do some 457b again depending on the situation.

Good luck!

Sleepy

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FiveK
Posts: 5829
Joined: Sun Mar 16, 2014 2:43 pm

Re: 457 vs Backdoor Roth

Post by FiveK » Mon Mar 19, 2018 4:43 pm

PediDoc wrote:
Mon Mar 19, 2018 1:52 pm
I know the correct answer would be to fully fund both a 457 and a backdoor Roth but which one would be a better choice alone?
For the generic look, see Traditional versus Roth - Bogleheads.

But do make sure you appreciate the details of governmental vs. non-governmental 457 plans, and are comfortable with whatever it is you have.

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