(Another) Should I invest in my non-govermental 457 (b) or something else?

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Topic Author
beginner
Posts: 33
Joined: Sat Dec 10, 2011 1:32 am
Location: TX

(Another) Should I invest in my non-govermental 457 (b) or something else?

Post by beginner » Mon Apr 15, 2019 8:26 pm

Should I contribute max amount to my employers non govermental 457b or put money somewhere else? Taxable account? 529 (I have 2 kids)? Pay off mortgage? Split excess monthly money into a few of these? I max out 403b and HSA every year.

Im a physician and my employee is a major hospital and is "stable". Here is how it is paid on separation:
-------------------------------------------------
""Distributions upon Separation of Employment 457 (b)
Distributions from the Plan are defaulted to a Lump Sum distribution, paid 60 days following your Separation Date, unless you
elect to postpone the timing of your distribution to a later date or elect to take your distribution in installment payments up to
10 years. You have 60 days following your Separation Date to make this distribution election. Distribution election forms will
be mailed from Empower following your separation, or you can call plan to request a form if you do not receive one in
the mail.
You will be granted a one-time opportunity to change how your account will be paid to you following your termination date. If
you wish to postpone the timing of when your Plan benefits will be paid, you must submit a valid distribution change request at
least 30 days prior to the original distribution commencement date, and no additional changes are permitted once distributions
have commenced from your account.
""
Also for 457 b:
Plan balances are not eligible for IRA “rollover”, however you are
permitted to do a plan-to-plan rollover to another eligible plan established under Code Section 457(b) by a tax-exempt entity.
Plans established by a State or political subdivision of a State are exempt from this rollover provision
-----------------------------------------------------

My info:

Emergency funds: 3 months in Ally
Debt: 460k mortgage @ 4.00%.
Tax Filing Status: Married Filing Jointly, single income (wife is SAHM)
Tax Rate: 35% marginal
State of Residence: TX
Age:32

Current Retirement assets: 205k in 85% stock/ 15% Bonds Overall

Taxable: NONE

Pretax:
TSP from previous job: 92k
403b: 8k
401k: 18k
457b: 27k
3% auto match plan: 6.5k
HSA: 17K

Post tax:
Roth: 36k
Last edited by beginner on Tue Apr 16, 2019 2:37 am, edited 2 times in total.

mariezzz
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by mariezzz » Tue Apr 16, 2019 12:43 am

Do you have a 403b option you can use - doesn't look like you've maxed that out yet. That's a safer option. But once you max that out, you may be asking the same question again.

Read the wiki on 457b https://www.bogleheads.org/wiki/457(b) and pay particular attention to the problems with a nongovernmental 457b. They are risky. I would be very unlikely to use one as that money is subject to creditor claims against the nongovernmental employer - although a stable hospital might be something to consider. There's a lot of good information on the internet about the probems with nongov 457.

I would invest in a governmental 457b providing fees are low enough.

You might check out the whitecoatinvestor web site (you'll see them mentioned on this site). You might get more informed opinions about 457bs run by hospital facilities.

letsgobobby
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by letsgobobby » Tue Apr 16, 2019 1:36 am

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Last edited by letsgobobby on Thu Apr 18, 2019 12:10 am, edited 1 time in total.

Topic Author
beginner
Posts: 33
Joined: Sat Dec 10, 2011 1:32 am
Location: TX

Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by beginner » Tue Apr 16, 2019 2:35 am

mariezzz wrote:
Tue Apr 16, 2019 12:43 am
Do you have a 403b option you can use - doesn't look like you've maxed that out yet. That's a safer option. But once you max that out, you may be asking the same question again.

Read the wiki on 457b https://www.bogleheads.org/wiki/457(b) and pay particular attention to the problems with a nongovernmental 457b. They are risky. I would be very unlikely to use one as that money is subject to creditor claims against the nongovernmental employer - although a stable hospital might be something to consider. There's a lot of good information on the internet about the probems with nongov 457.

I would invest in a governmental 457b providing fees are low enough.

You might check out the whitecoatinvestor web site (you'll see them mentioned on this site). You might get more informed opinions about 457bs run by hospital facilities.
I edited post to reflect that I am maxing out 403b.
Thanks, I am reading over on wci now.

Topic Author
beginner
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Location: TX

Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by beginner » Tue Apr 16, 2019 2:38 am

letsgobobby wrote:
Tue Apr 16, 2019 1:36 am
beginner wrote:
Mon Apr 15, 2019 8:26 pm

Tax Rate: 2018 effective tax rate 17.8%
for this decision you marginal tax rate is what matters.

i don’t use my nongov 457b from a similar stable hospital system. i don’t need to take the incremental risk, so I don’t.
35% marginal. Edited original post.
Thanks.

pharmermummles
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by pharmermummles » Tue Apr 16, 2019 3:00 am

I'm in the same boat you are. I'm a pharmacist at a large, stable hospital system. My marginal rate isn't as high as yours, but with my student loans tied to my income, and the balance set to be forgiven after 10 years under PSLF, it is effectively in the same ballpark. I reached the income threshold to qualify for our 457(b) last November, and started maxing it out.

After maxing out our IRAs, the HSA, and my 403(b), the tax savings just makes too much sense. A lot of it can depend on your situation and future goals. The risk of losing it to creditors is small, but you have to accept the small risk. Keep in mind, that the 457(b) assets cannot be touched by creditors until after all physical assets have been sold off. So not only would the hospital system have to go out of business, but they would have to sell every building, IV pump, bed, chair, and stapler before they can touch those assets. The risk exists, but it is pretty minor for large stable organizations. I have also heard horror stories of people missing deadlines and being stuck with a lump sum. Stay on top of your mail when you retire, and this shouldn't be a problem. But DO NOT miss the 60-day deadline or Uncle Sam will make you wish you never did it.

You also have to keep in mind what they future tax implications will be. I plan to retire early, so 457(b) income in the early years of my retirement when I will otherwise have no income will be taxed favorably. If you plan to work long enough for the income to be piled on top of social security or (god forbid) RMDs, then it makes less sense, although even then, tax deferral has value.

letsgobobby
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by letsgobobby » Tue Apr 16, 2019 8:53 am

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am
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by am » Tue Apr 16, 2019 9:07 am

I max my non gov 457b and have few worries as my major top ranked hospital system has good financials and the plan has good distribution and investment options. At my bracket, it costs only 11k or so in reduced take home pay to max it.

First I heard that physical assets are first in line for creditors before plan assets? Can anyone verify if this is true? If true, seems like it would take a lot to get to the plan assets, particularly for a major hospital system,

I’ve never heard of a physician losing their savings in one of these plans in all the years that there have been discussions on here and other forums. I think the risk is minuscule compared to other risks such as poor market returns.

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neurosphere
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by neurosphere » Tue Apr 16, 2019 9:14 am

letsgobobby wrote:
Tue Apr 16, 2019 1:36 am
i don’t use my nongov 457b from a similar stable hospital system. i don’t need to take the incremental risk, so I don’t.
I DO invest in my stable hospital 457b. I figure I'll have a warning if bankruptcy is imminent. At which point I'll quit my job and lump-sum my money out. And I'll probably take a few months off or more at that time, looking for another job perhaps, in which case my marginal rate will likely be lower than it was when I made my contributions, and thus the tax deferral will have been very useful.

I can follow the bond rating of the hospital for clues (although, we all know examples of top-tier ratings whose companies went belly up FAST during the past financial crisis). Not sure if digging into the annual financial statements would be helpful (not sure I have the ability to figure out the health of the hospital, although I kinda sorta know how to look for things like cash, physical assets, debt, burn rates, income trends, etc).

In my case, my hospital job is not going to be long term (hi boss!) so that provide some extra safety for me.

Summary: I ASSUME one would have clues prior to a 457b-affecting event, and have the option of leaving the job. But that may be a drastic move for many people (although, how stable is a physician job if there is a hospital bankruptcy, I wonder).
If you have to ask "Is a Target Date fund right for me?", the answer is "Yes".

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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by megabad » Tue Apr 16, 2019 12:03 pm

beginner wrote:
Mon Apr 15, 2019 8:26 pm
Should I contribute max amount to my employers non govermental 457b or put money somewhere else? Taxable account? 529 (I have 2 kids)? Pay off mortgage? Split excess monthly money into a few of these? I max out 403b and HSA every year.

Im a physician and my employee is a major hospital and is "stable". Here is how it is paid on separation:
How major is your major hospital? If it is Mayo, Cleveland, or MassGen; then I say go for it. Otherwise, I would need to peruse the financials before I made a decision personally. Are you going to be there a long time? If so, I lean toward maybe using the 457. If not, then the benefit would be very small and you might get stuck with nowhere to move it so I probably wouldn't use. If you need some more tax deferral make sure you buy your i-bonds.

PS. I have never seen any evidence to support the idea that 457 is in anyway protected or the "last" available asset. In contrast, the IRS specifically states that non-governmental 457 participants are lower priority than general creditors.

Topic Author
beginner
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Joined: Sat Dec 10, 2011 1:32 am
Location: TX

Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by beginner » Tue Apr 16, 2019 4:19 pm

Thank you everyone for your responses.
letsgobobby wrote:
Tue Apr 16, 2019 8:53 am
Tax deferral on a highly tax efficient index ETF doesn't add a ton of value.
Very True.
neurosphere wrote:
Tue Apr 16, 2019 9:14 am
letsgobobby wrote:
Tue Apr 16, 2019 1:36 am
i don’t use my nongov 457b from a similar stable hospital system. i don’t need to take the incremental risk, so I don’t.
Summary: I ASSUME one would have clues prior to a 457b-affecting event, and have the option of leaving the job. But that may be a drastic move for many people (although, how stable is a physician job if there is a hospital bankruptcy, I wonder).
I respect your opinion (and thanks for advice throughout the forum I've seen).
megabad wrote:
Tue Apr 16, 2019 12:03 pm
beginner wrote:
Mon Apr 15, 2019 8:26 pm
Should I contribute max amount to my employers non govermental 457b or put money somewhere else? Taxable account? 529 (I have 2 kids)? Pay off mortgage? Split excess monthly money into a few of these? I max out 403b and HSA every year.

Im a physician and my employee is a major hospital and is "stable". Here is how it is paid on separation:
How major is your major hospital? If it is Mayo, Cleveland, or MassGen; then I say go for it. Otherwise, I would need to peruse the financials before I made a decision personally. Are you going to be there a long time? If so, I lean toward maybe using the 457. If not, then the benefit would be very small and you might get stuck with nowhere to move it so I probably wouldn't use. If you need some more tax deferral make sure you buy your i-bonds.

PS. I have never seen any evidence to support the idea that 457 is in anyway protected or the "last" available asset. In contrast, the IRS specifically states that non-governmental 457 participants are lower priority than general creditors.
That is how I read it in my online forms. The 457 assets are first in line for the creditors. My institution is Baylor Scott and White. They are located in Dallas and many locations in central Texas. Stable and growing but even the largest can fall at any time.

I think for now I will NOT contribute to my 457 (b) for these reasons:
-I'm young and chances are I will not be at this job when I retire.
-risk of losing it if employer goes bankrupt and its lack of protection (first in line). (even though I cannot find an example of this happening to a physician)
-I''d like to shift focus on taxable account, 529, and maybe some extra money towards the mortgage.

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Clever_Username
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by Clever_Username » Tue Apr 16, 2019 4:51 pm

beginner wrote:
Tue Apr 16, 2019 4:19 pm
I think for now I will NOT contribute to my 457 (b) for these reasons:
-I'm young and chances are I will not be at this job when I retire.
-risk of losing it if employer goes bankrupt and its lack of protection (first in line). (even though I cannot find an example of this happening to a physician)
-I''d like to shift focus on taxable account, 529, and maybe some extra money towards the mortgage.

Thank you for posting your thoughts as this thread evolved. As a teacher at a private school, I might someday be eligible for my school's 457 (non-governmental) and seeing the thought process of others deciding on theirs is helpful to me.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by retire2022 » Tue Apr 16, 2019 9:13 pm

OP

32-67=35 years of investing, therefore 35x$19,000=$665,000 contributions, using a compound interest calculator:

http://www.moneychimp.com/calculator/co ... ulator.htm

35 years assuming $19,000 @ 4% = $1,455,367.96 difference of potential $790,367.96 opportunity cost of not investing for 35 years.

pharmermummles
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by pharmermummles » Tue Apr 16, 2019 11:28 pm

The tax deferral is about a lot more than just the gains. Sure, VTSAX in a taxable account won't be throwing off too much in the way of taxable gains. But the up front reduction in W2 income is huge depending on your circumstances. You don't get that with a taxable account or series I bonds. I know that for me, since I suspect I will be staying put at my hospital until early retirement, lower AGI now is VERY advantageous when my early-retirement income will be very low. For OP, it probably is the right choice to stay away if he foresees leaving the employer and will just have to pay taxes at his top marginal rate later anyway during the middle of his career.

letsgobobby
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by letsgobobby » Wed Apr 17, 2019 12:21 am

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runner3081
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by runner3081 » Wed Apr 17, 2019 2:44 pm

Timely thread. Just received notice that I am eligible for my non-governmental 457B, starting in May.

I have probably 12-15 years of full time employment left at this employer. Solid, longstanding company and I will max it out each year (already maxing ROTH, 403B, HSA and contributing to both post tax brokerage and 529). It should save about $4.5k per year in tax savings.

With that said, this is an enlightening conversation and has opened my eyes to some of the risks. I am not an MD, but fairly high up in management, so it is reasonable that I would know what is coming before it all hits the fan.

retire2022
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by retire2022 » Wed Apr 17, 2019 6:21 pm

letsgobobby wrote:
Wed Apr 17, 2019 12:21 am

No one is suggesting he not invest. We’re suggesting he invest in a taxable account rather than a nongov 457b. Comparing the two, the only opportunity cost is the very small benefit of tax-deferral vs taxable investing (tax drag is perhaps 40 basis points per year) and whatever differential exists in his marginal tax bracket today vs when the money is withdrawn.
That is fine, taxable accounts have an advantage for funding for new home purchase, but have a disadvantage not having dividends and capital gains sheltered from taxes, I leave it up to OP to decide which approach to choose.

Btw I only posted my statement above just to illustrate although the not for profit or tax exempt 457b plan is not as good as government 457b plan, just having numbers themselves is a non-judgemental statement in itself, I apologize if I was not clear.

am
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by am » Wed Apr 17, 2019 6:44 pm

If your investing >100-150k+ a yr, then it doesn’t really matter. It’s “only” 19k pre tax which reduces take home by 10-11k. Just noise, same with if you lose it. After investing all those years its not going to break your expected retirement. And this is bogleheads, so hyper worrying and catastrophizing is expected. Just look at the can I retire threads on here. If you don’t have 5 mil, a pension covering expenses, and Health, you shouldn’t even think about it :D

Grundy53
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Re: (Another) Should I invest in my non-govermental 457 (b) or something else?

Post by Grundy53 » Thu Apr 18, 2019 12:24 am

mariezzz wrote:
Tue Apr 16, 2019 12:43 am
Do you have a 403b option you can use - doesn't look like you've maxed that out yet. That's a safer option. But once you max that out, you may be asking the same question again.

Read the wiki on 457b https://www.bogleheads.org/wiki/457(b) and pay particular attention to the problems with a nongovernmental 457b. They are risky. I would be very unlikely to use one as that money is subject to creditor claims against the nongovernmental employer - although a stable hospital might be something to consider. There's a lot of good information on the internet about the probems with nongov 457.

I would invest in a governmental 457b providing fees are low enough.

You might check out the whitecoatinvestor web site (you'll see them mentioned on this site). You might get more informed opinions about 457bs run by hospital facilities.
Off topic but I just want to thank you for posting that wiki. It saved my butt. I contribute to a government 457b but a couple years ago my company started offering a Roth 457b so I started contributing to that instead. I just assumed (I know, stupid) that it too didn't have a early withdrawal penalty as long as you were retired from the company. I'll have my 30 years in when I'm 52 so I was counting on the Roth 457b to bridge me from retirement until 59.5 when I can start using my Roth IRA. Definitely going to switch back to the pre tax 457b. Thanks again.

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