Retiring next year. Should I maximize contribution to Roth 457 or IRA 457 or both?

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sicpupaz
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Joined: Thu Jan 09, 2020 6:52 pm

Retiring next year. Should I maximize contribution to Roth 457 or IRA 457 or both?

Post by sicpupaz » Tue Jan 14, 2020 6:39 pm

I'm married and retiring Dec 2020. My wife retiring Dec 2021. My employer offers a Roth 457 and her's offers a non matching IRA and Roth option.

Our current tax bracket is 22% and our expected tax bracket in retirement is 14%.

Our strategy is to do Roth conversions from our IRAs (700K) in years 2022 to 2025 (while the tax brackets are fixed).

This year we want to maximize our contributions to our retirement accounts and Health Saving Account at work.

Should we maximize our contributions to
1. Roth or
2. IRA, then roll them into a Roth in 2021-2025 or
3. combination of both.

Since we both are over 59 and never used the "catch up" provision, what is the maximum we can make this year?

ExitStageLeft
Posts: 1798
Joined: Sat Jan 20, 2018 4:02 pm

Re: Retiring next year. Should I maximize contribution to Roth 457 or IRA 457 or both?

Post by ExitStageLeft » Wed Jan 15, 2020 3:11 pm

Welcome to the forum!

I'm a little confused by your terminology, so it may be helpful to clear some things up. Firstly, what are the plans offered by your employer? It may be that they do in fact participate in an IRA plan, but if so it will have a designation such as SIMPLE IRA. Or, more likely in my mind, does the employer offer a tax-deferred 401k in addition to the 457b plan?

If you look at the list of possible retirement plans (https://www.irs.gov/retirement-plans/pl ... ment-plans) it should become clearer. If not, you may wish to consult your employer's documentation to be certain.

It's important to be precise in our terminology because the tax laws are different depending on the type of plan.

As to annual contributions, you potentially can make the following contributions in 2020:

$19,500 in a 401k, 401a, 403b, or other qualified plan. If over age 50 you can also make $6,500 in catch-up contributions.
$19,500 in a 457b plan.
$6,000 in an IRA. If over age 50 you can also make $1,000 in catch-up contributions.
$13,500 in a SIMPLE IRA (small business employer plan). If over age 50 you can also make $3,000 in catch-up contributions.

Note that you can still make contributions in IRA accounts for 2019 up until tax filing day.

With the limited available information in your post, my recommendation would be to follow the advice in the wiki page https://www.bogleheads.org/wiki/Priorit ... nvestments

1) Contribute to employer plans up to the match (if any)
2) Contribute max to Roth IRAs, including for 2019 if you haven't already
3) Then save as much as you can afford in tax-deferred employer plans

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FiveK
Posts: 8070
Joined: Sun Mar 16, 2014 2:43 pm

Re: Retiring next year. Should I maximize contribution to Roth 457 or IRA 457 or both?

Post by FiveK » Thu Jan 16, 2020 1:49 am

sicpupaz wrote:
Tue Jan 14, 2020 6:39 pm
Our current tax bracket is 22% and our expected tax bracket in retirement is 14%.
That's an unusual combination, so just checking: do you now live in a state with no income tax so the 22% is all federal, and plan to move to a state with 2% income tax and be in the 12% federal bracket?

Will you have subsidized ACA insurance and/or be affected by taxation of Social Security benefits such that your marginal tax rate will differ significantly from your nominal bracket rate?

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BL
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Joined: Sun Mar 01, 2009 2:28 pm

Re: Retiring next year. Should I maximize contribution to Roth 457 or IRA 457 or both?

Post by BL » Thu Jan 16, 2020 2:32 am

I did make use of the 457 catch-up or make-up plan long ago so I know it has its' own rules and they are different from 401k over 50 amounts. Seems like they were in the designated last 3 years of employment and not sure if it was based on what was not available before or could also be done if you had chosen to not contribute earlier. While working part-time, I put every cent available into the plan.

Tax brackets are 0, 12, 22, 24, etc % based on the formerly page 2 on the 1040 where you have calculated total income after subtracting SD or itemized deduction from adjusted AGI (+ other adjustments).

ExitStageLeft
Posts: 1798
Joined: Sat Jan 20, 2018 4:02 pm

Re: Retiring next year. Should I maximize contribution to Roth 457 or IRA 457 or both?

Post by ExitStageLeft » Thu Jan 16, 2020 4:23 pm

BL wrote:
Thu Jan 16, 2020 2:32 am
I did make use of the 457 catch-up or make-up plan long ago so I know it has its' own rules and they are different from 401k over 50 amounts.
...
I forgot about that. I believe it varies by plan, but the law allows for a very aggressive catch-up in government 457b plans.

https://www.irs.gov/retirement-plans/pl ... ion-limits

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