Help picking funds for 457(b) plan

Have a question about your personal investments? No matter how simple or complex, you can ask it here.
Post Reply
GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Help picking funds for 457(b) plan

Post by GrowMyMoney » Wed Oct 31, 2018 9:10 pm

Hello

My firm allows me to defer part of my compensation into a tax deferred vehicle called a 457(b). Basically it’s a plan allows me to contribute up to 100% of my base and bonus pretax into an account where it’s deferred for a minimum of 3 years. This plan is above your 401(k) contribution limits. Ok but you guys know that part.

Her Age: 32
Her salary: 125k, with inflationary increases
Her 401k: I just had her start but I don’t know the full details quite yet
Her student loans: 50k remaining
Her Roth: N/A
Her job stability: high
Her job satisfaction: moderate; intends to work until she’s bored

His Age: 40
His salary: 250k base, 80k bonus, 30k stock, with performance based increases
His 401k: 485k in old employers plan, 30k in old employers plan, 45k in the current Roth 401k plan (he contributes max, employer contributes 75% of the first 5% of contribution… I believe that’s 5% of based on your base comp)
His Roth: 35k (contributing max annually via conversion)
His 457(b): 18k deferred for 3 years starting 2018
His job stability: moderate to high
His anticipated job satisfaction: high, intends to work until 65+

Their taxable investment: 120k
Just pure cash in the bank: 130k
Own primary residence with 435k mortgage remaining
Own two rental properties outright
Own one rental property with 70k mortgage remaining
Rental income is ~50k gross
Their HSA: 0 (contributing 3k starting year, but maybe this is an area I can do better in… happy for feedback)

Here’s is the list of available funds:

Last year I deferred 10% of my base. I was in a fairly aggressive portfolio that is currently down 10% YTD and was allocated as follows:
15% - VIRTUS CEREDEX LARGE CAP VALUE EQ CL IS - STVZX
26% - Vanguard Institutional Index Instl - VINIX
10% - Wells Fargo Special Mid Cap Value R6 - WFPRX
10% - T. Rowe Price Mid-Cap Growth I - RPTIX
5% - Robeco Small Cap Value II Instl - BPSIX
5% - Vanguard Small-Cap Index Instl - VSCIX
10% - MFS Intl Diversification R6 - MDIZX
9% - Vanguard FTSE All-World Ex US Index Instl - VFWSX
5% - Lazard Emerging Markets R6 - RLEMX
5% - Principal Real Estate Securities I - PIREX

This year I’m thinking of keeping the deferral rate steady at 10% but wanted to tap your collective knowledge to help me select the funds I should select for this year’s plan.
T. Rowe Price US Large-Cap Core I
MFS Intl Diversification R6
Principal Short-Term Income Instl
Vanguard Federal Money Market Investor
Principal Government & High Quality Bond
Vanguard Intermediate-Term Inv Grade Adm
Metropolitan West Total Return Bond
PIMCO Real Return Institutional
Vanguard Wellington Adm
VIRTUS CEREDEX LARGE CAP VALUE EQ CL IS
Vanguard Institutional Index Instl
Alger Capital Appreciation Instl Y
Wells Fargo Special Mid Cap Value R6
T. Rowe Price Mid-Cap Growth I
Vanguard Small-Cap Index Instl
Robeco Small Cap Value II Instl
Neuberger Berman Genesis R6
Wasatch Core Growth Institutional
Franklin Mutual Global Discovery R6
Vanguard FTSE All-World Ex US Index Instl
Lazard Emerging Markets R6
Principal Real Estate Securities I
BlackRock LifePath Index 2020 K
BlackRock LifePath Index 2025 K
BlackRock LifePath Index 2030 K
BlackRock LifePath Index 2035 K
BlackRock LifePath Index 2040 K
BlackRock LifePath Index 2045 K
BlackRock LifePath Index 2050 K
BlackRock LifePath Index 2055 K
BlackRock LifePath Index 2060 Fund Class K
BlackRock LifePath Index Retirement K

If I missed any info that you guys need let me know.

Thanks for the help!

gobigrad
Posts: 7
Joined: Tue Oct 02, 2018 9:11 pm

Re: Help picking funds for 457(b) plan

Post by gobigrad » Wed Oct 31, 2018 10:09 pm

Try including the expense ratios on those funds.
What is your stock/bond %?
US/international %?

sawhorse
Posts: 3109
Joined: Sun Mar 01, 2015 7:05 pm

Re: Help picking funds for 457(b) plan

Post by sawhorse » Thu Nov 01, 2018 7:30 am

Is this a government or non government 457b? I'm just making sure that you know the important differences and the risks and disadvantages if it's a non government plan.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 01, 2018 7:42 am

gobigrad wrote:
Wed Oct 31, 2018 10:09 pm
Try including the expense ratios on those funds.
What is your stock/bond %?
US/international %?
They don’t give me that info but I can try to look them up and post what I find.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 01, 2018 7:43 am

sawhorse wrote:
Thu Nov 01, 2018 7:30 am
Is this a government or non government 457b? I'm just making sure that you know the important differences and the risks and disadvantages if it's a non government plan.
Non-government and I probably lean towards being 457(b) illiterate.

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Thu Nov 01, 2018 8:44 am

GrowMyMoney wrote:
Thu Nov 01, 2018 7:42 am
gobigrad wrote:
Wed Oct 31, 2018 10:09 pm
Try including the expense ratios on those funds.
What is your stock/bond %?
US/international %?
They don’t give me that info but I can try to look them up and post what I find.
They must give you that information. Do not look this up on a retail internet site because it may be different from your specific plan.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 01, 2018 8:59 am

retiredjg wrote:
Thu Nov 01, 2018 8:44 am
GrowMyMoney wrote:
Thu Nov 01, 2018 7:42 am
gobigrad wrote:
Wed Oct 31, 2018 10:09 pm
Try including the expense ratios on those funds.
What is your stock/bond %?
US/international %?
They don’t give me that info but I can try to look them up and post what I find.
They must give you that information. Do not look this up on a retail internet site because it may be different from your specific plan.
They don’t provide it on their site directly and there isn’t any format I can easily copy and paste into a forum. Maybe that’s better said.

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Thu Nov 01, 2018 9:11 am

Best guess....

Vanguard Intermediate-Term Inv Grade Adm
Vanguard Institutional Index Instl
Vanguard Small-Cap Index Instl
Vanguard FTSE All-World Ex US Index Instl
or one of the LifePath funds.

There really is not enough information in your post to help you much other than pointing out the likely best funds. Best funds are almost always chosen by lowest cost.

You might take a look at the link at the bottom of this message for the information we are looking for to offer portfolio advice.

sawhorse
Posts: 3109
Joined: Sun Mar 01, 2015 7:05 pm

Re: Help picking funds for 457(b) plan

Post by sawhorse » Thu Nov 01, 2018 9:51 am

GrowMyMoney wrote:
Thu Nov 01, 2018 7:43 am
sawhorse wrote:
Thu Nov 01, 2018 7:30 am
Is this a government or non government 457b? I'm just making sure that you know the important differences and the risks and disadvantages if it's a non government plan.
Non-government and I probably lean towards being 457(b) illiterate.
This is important. Non-governmental 457s can be seized by the employer's creditors. If the employer goes bankrupt, individual employees can lose all the money in their 457 accounts.

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Thu Nov 01, 2018 10:02 am

sawhorse wrote:
Thu Nov 01, 2018 9:51 am
GrowMyMoney wrote:
Thu Nov 01, 2018 7:43 am
sawhorse wrote:
Thu Nov 01, 2018 7:30 am
Is this a government or non government 457b? I'm just making sure that you know the important differences and the risks and disadvantages if it's a non government plan.
Non-government and I probably lean towards being 457(b) illiterate.
This is important. Non-governmental 457s can be seized by the employer's creditors. If the employer goes bankrupt, individual employees can lose all the money in their 457 accounts.
Also, they can never be rolled into an IRA. The only choice is to leave in or roll to another non-governmental 457b. Furthermore, the withdrawal requirements can be bad - you may be required to take the money at the worst possible time.

This does not mean you should not use a non-governmental 457b, but it is certainly not a no-brainer.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 01, 2018 10:05 am

sawhorse wrote:
Thu Nov 01, 2018 9:51 am
GrowMyMoney wrote:
Thu Nov 01, 2018 7:43 am
sawhorse wrote:
Thu Nov 01, 2018 7:30 am
Is this a government or non government 457b? I'm just making sure that you know the important differences and the risks and disadvantages if it's a non government plan.
Non-government and I probably lean towards being 457(b) illiterate.
This is important. Non-governmental 457s can be seized by the employer's creditors. If the employer goes bankrupt, individual employees can lose all the money in their 457 accounts.
That’s pretty important info. I did not know that and I don’t think I’m ultra comfortable with that. Maybe I won’t participate going forward.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 01, 2018 10:06 am

retiredjg wrote:
Thu Nov 01, 2018 10:02 am
sawhorse wrote:
Thu Nov 01, 2018 9:51 am
GrowMyMoney wrote:
Thu Nov 01, 2018 7:43 am
sawhorse wrote:
Thu Nov 01, 2018 7:30 am
Is this a government or non government 457b? I'm just making sure that you know the important differences and the risks and disadvantages if it's a non government plan.
Non-government and I probably lean towards being 457(b) illiterate.
This is important. Non-governmental 457s can be seized by the employer's creditors. If the employer goes bankrupt, individual employees can lose all the money in their 457 accounts.
Also, they can never be rolled into an IRA. The only choice is to leave in or roll to another non-governmental 457b. Furthermore, the withdrawal requirements can be bad - you may be required to take the money at the worst possible time.

This does not mean you should not use a non-governmental 457b, but it is certainly not a no-brainer.
Thanks for all the info. I think I’m going to pass on participating going forward.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 01, 2018 10:10 am

retiredjg wrote:
Thu Nov 01, 2018 9:11 am
Best guess....

Vanguard Intermediate-Term Inv Grade Adm
Vanguard Institutional Index Instl
Vanguard Small-Cap Index Instl
Vanguard FTSE All-World Ex US Index Instl
or one of the LifePath funds.

There really is not enough information in your post to help you much other than pointing out the likely best funds. Best funds are almost always chosen by lowest cost.

You might take a look at the link at the bottom of this message for the information we are looking for to offer portfolio advice.
I thought I put all the relevant info into my original post but reviewing the link it seems I have more work to do. Since this was 457 focused I’ll post another thread that contains the missing info for overall portfolio help. Thanks.

User avatar
ruralavalon
Posts: 14080
Joined: Sat Feb 02, 2008 10:29 am
Location: Illinois

Re: Help picking funds for 457(b) plan

Post by ruralavalon » Thu Nov 01, 2018 10:13 am

Does your employer also offer a 403b plan, 401k plan or a SIMPLE IRA?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Thu Nov 01, 2018 10:17 am

GrowMyMoney wrote:
Thu Nov 01, 2018 10:10 am
retiredjg wrote:
Thu Nov 01, 2018 9:11 am
Best guess....

Vanguard Intermediate-Term Inv Grade Adm
Vanguard Institutional Index Instl
Vanguard Small-Cap Index Instl
Vanguard FTSE All-World Ex US Index Instl
or one of the LifePath funds.

There really is not enough information in your post to help you much other than pointing out the likely best funds. Best funds are almost always chosen by lowest cost.

You might take a look at the link at the bottom of this message for the information we are looking for to offer portfolio advice.
I thought I put all the relevant info into my original post but reviewing the link it seems I have more work to do. Since this was 457 focused I’ll post another thread that contains the missing info for overall portfolio help. Thanks.
We can look at the list and guess at the best funds in the plan. But that has nothing to do with what funds you actually need for your portfolio. So if you really want help with the portfolio, that is the better thing to do. :happy

It's some work, but you will learn things by doing it.

Please note that we are looking for percentages of portfolio, not percentages of each account. A lot of people have been missing that lately and it causes a lot more work for people who are trying to help you. That means fewer people will try to help.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 01, 2018 12:31 pm

ruralavalon wrote:
Thu Nov 01, 2018 10:13 am
Does your employer also offer a 403b plan, 401k plan or a SIMPLE IRA?
Yeah I have a 401k mentioned in the original post. That’s maxed out already.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Wed Nov 07, 2018 3:58 pm

So as it turns out I was WRONG... it' not a 457(b) plan but rather a 409A. Apparently they are still subject to creditors but if history is any indication on how the courts will rule they almost never let the creditors at the plans or at least not very much of it. The fees (outside of the funds internal fees) are all paid for by my employer.

Does that change any opinions?

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Wed Nov 07, 2018 4:15 pm

I'm not sure I would use it.

You apparently plan to fill His 401k and Her 401k and HIs roth IRA (via back door). I'd also fill Her roth IRA (via back door).

I would not use this other thing - 409a which I believe is called a NQDC (non-qualified deferred comp) - because I don't think you need to defer more and because of the cons that are similar to a non-governmental 457b. In addition, you didn't mention the withdrawal options - they might be bad.

However, if you decide to use it, the same funds are the ones to consider.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Wed Nov 07, 2018 4:26 pm

retiredjg wrote:
Wed Nov 07, 2018 4:15 pm
I'm not sure I would use it.

You apparently plan to fill His 401k and Her 401k and HIs roth IRA (via back door). I'd also fill Her roth IRA (via back door).

I would not use this other thing - 409a which I believe is called a NQDC (non-qualified deferred comp) - because I don't think you need to defer more and because of the cons that are similar to a non-governmental 457b. In addition, you didn't mention the withdrawal options - they might be bad.

However, if you decide to use it, the same funds are the ones to consider.
409A is a NQDC.

The cons are:
1) available to creditors (but this is low risk for our company profile) ie we're more likely to get bought out for client relationships than default
2) they can terminate at any time leaving you with a large tax bill... but it's my understanding that most firms usually do this to protect your money in crisis situations
3) fees but in my case the fees are taken care of by my employer
4) separation distributions but I can actually control those so they are set to be over a number of years (2-15 yrs)

Am I missing any other cons? Clearly not a no brainer but it's also not so bad give the "buts" I added above

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Wed Nov 07, 2018 4:53 pm

There is a difference between taking a risk for something you need and taking the same risk for something you don't need.

My position is that you don't actually need this.

You are 40 and intend to work another 25 years. You already have about $500k in tax deferral and are adding a lot each year. When you retire, your tax-deferred account could turn into a tax-torpedo when you hit RMDs 70.5.

I used to be on the "tax-defer all you can" bandwagon, but jumped off awhile back after hearing from several people here who had saved to much in pre-tax money. I'm still all for tax-deferral, not just this much. I suspect I'm in a minority in this position.

However, you mentioned your "roth 401k". Are you using Roth 401k now?

Will you have a pension?

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 08, 2018 9:41 am

retiredjg wrote:
Wed Nov 07, 2018 4:53 pm
There is a difference between taking a risk for something you need and taking the same risk for something you don't need.

My position is that you don't actually need this.

You are 40 and intend to work another 25 years. You already have about $500k in tax deferral and are adding a lot each year. When you retire, your tax-deferred account could turn into a tax-torpedo when you hit RMDs 70.5.

I used to be on the "tax-defer all you can" bandwagon, but jumped off awhile back after hearing from several people here who had saved to much in pre-tax money. I'm still all for tax-deferral, not just this much. I suspect I'm in a minority in this position.

However, you mentioned your "roth 401k". Are you using Roth 401k now?

Will you have a pension?
I'm using a Roth 401k in my newest 401k plan (about 1.5yrs). I ran through a few calculators and apparently they all indicate it's slightly better for me.

I will have a small pension with my prior employer. I think it's like $850 a month.

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Thu Nov 08, 2018 9:57 am

GrowMyMoney wrote:
Thu Nov 08, 2018 9:41 am
I'm using a Roth 401k in my newest 401k plan (about 1.5yrs). I ran through a few calculators and apparently they all indicate it's slightly better for me.
With your income, I don't know how a calculator could show that.

However, we have never established your tax bracket and you have never said that you and She are married. We don't know how you are filing your taxes. For all we know you could be single ad have joint assets.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 08, 2018 1:00 pm

retiredjg wrote:
Thu Nov 08, 2018 9:57 am
GrowMyMoney wrote:
Thu Nov 08, 2018 9:41 am
I'm using a Roth 401k in my newest 401k plan (about 1.5yrs). I ran through a few calculators and apparently they all indicate it's slightly better for me.
With your income, I don't know how a calculator could show that.

However, we have never established your tax bracket and you have never said that you and She are married. We don't know how you are filing your taxes. For all we know you could be single ad have joint assets.
Was working on that info for another post. I have that info Handy

Tax Filing Status: Married Filing Jointly with 2 Dependent Children
Tax Rate:
28% Federal in 2017 determined from Line 43 of my return
~5.5% State

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Thu Nov 08, 2018 2:23 pm

ran this calc again... still points to Roth
https://www.bankrate.com/calculators/re ... lator.aspx

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Thu Nov 08, 2018 5:36 pm

I can't really look at that calculator until this weekend. Not sure how it came up with preferring Roth, but I'll try to see why when I have time to study it.

In the 28% tax bracket, the usual recommendation here would be to use traditional 401k, not Roth 401k, accompanied by Roth IRA. This is because people in retirement are often in very low brackets even if they are wealthy. No sense in paying 28% today if you could pay 15% later.

retiredjg
Posts: 34193
Joined: Thu Jan 10, 2008 12:56 pm

Re: Help picking funds for 457(b) plan

Post by retiredjg » Sat Nov 10, 2018 9:18 am

GrowMyMoney wrote:
Thu Nov 08, 2018 2:23 pm
ran this calc again... still points to Roth
https://www.bankrate.com/calculators/re ... lator.aspx
It appears to me that it points to traditional, not Roth, but only by a small amount. Did I miss something?

Also, your tax bracket is 28% and the calculator used 25%.

GrowMyMoney
Posts: 28
Joined: Wed Oct 31, 2018 11:39 am

Re: Help picking funds for 457(b) plan

Post by GrowMyMoney » Sat Nov 10, 2018 11:58 am

retiredjg wrote:
Sat Nov 10, 2018 9:18 am
GrowMyMoney wrote:
Thu Nov 08, 2018 2:23 pm
ran this calc again... still points to Roth
https://www.bankrate.com/calculators/re ... lator.aspx
It appears to me that it points to traditional, not Roth, but only by a small amount. Did I miss something?

Also, your tax bracket is 28% and the calculator used 25%.
For me favored Roth by .2% but anyway I’ve decided I’m going move back to traditional based on your collective advice and some reading.

Post Reply