457 worth it with these fees?

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fortfun
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457 worth it with these fees?

Post by fortfun » Thu Jan 18, 2018 3:14 pm

I've learned that my school district offers a 457 through Great Western. The fees are a bit high.
.53 is the lowest fee. I've maxed out my 401k with another provider (fees are only .18%). Is it worth doing a pretax 457 with Great Western, or should I just do after tax with Vanguard or Fidelity?

Here is a list of fees:
https://s.nimbus.everhelper.me/share/13 ... pbb8gd1qgv

John Laurens
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Re: 457 worth it with these fees?

Post by John Laurens » Thu Jan 18, 2018 3:20 pm

Yes. Depending on your tax bracket. I would max Roth’s and HSAs first though.

Regards,
John

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fortfun
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Re: 457 worth it with these fees?

Post by fortfun » Thu Jan 18, 2018 3:24 pm

John Laurens wrote:
Thu Jan 18, 2018 3:20 pm
Yes. Depending on your tax bracket. I would max Roth’s and HSAs first though.

Regards,
John
Thanks John. We have. Would you recommend 100% in the Great Western S&P 500 at .54% fee?

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Re: 457 worth it with these fees?

Post by John Laurens » Thu Jan 18, 2018 3:28 pm

Yes. I would then adjust my other accounts as part of my overall asset allocation. Did you know a nice feature of 457 plans is you can withdraw contributions any time without a 10% penalty. You do have to pay regular income taxes. Nice feature if you retire before 59.5.

Regards,
John

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fortfun
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Re: 457 worth it with these fees?

Post by fortfun » Thu Jan 18, 2018 3:50 pm

John Laurens wrote:
Thu Jan 18, 2018 3:28 pm
Yes. I would then adjust my other accounts as part of my overall asset allocation. Did you know a nice feature of 457 plans is you can withdraw contributions any time without a 10% penalty. You do have to pay regular income taxes. Nice feature if you retire before 59.5.

Regards,
John
John, do you know how to make the calculation that would show at what ER a person would be better off doing after tax investment with a low fee company?
Thanks!

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fortfun
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Formula to determine if Pre-tax is worth Higher Fees

Post by fortfun » Thu Jan 18, 2018 4:23 pm

[Thread merged into here, see below. --admin LadyGeek]

Assuming there is no company match, can someone provide me with a formula that would help me determine if Pre-tax advantages outweigh higher fees on a 457plan? In other words, at what fee level should one just do post tax investing? We will likely be in the 22% tax bracket this year.

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fortfun
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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by fortfun » Thu Jan 18, 2018 4:45 pm

Does this seem right?

Cost of Fees
.54% x $18,000(yr) x 5.5 years = $534

Tax Savings
22% x $18,000(yr) x 5.5 years = $21,780

Gross Savings
21,780-534 = $21,246 Savings

If this is correct, then doing the .54 fee seems worth it as long as the Great West S & P index fund will have returns in line with the other companies.

Please tell me if my calculation is in the ball park. I know it doesn't include compounding interest, etc.

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by TwstdSista » Thu Jan 18, 2018 4:48 pm

A 0.54 ER isn't terrible. Assuming no other hidden fees, it should be worth it.

See: https://www.bogleheads.org/wiki/401%28k ... re_choices

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by Watty » Thu Jan 18, 2018 4:50 pm

fortfun wrote:
Thu Jan 18, 2018 4:23 pm
Assuming there is no company match, can someone provide me with a formula that would help me determine if Pre-tax advantages outweigh higher fees on a 457plan? In other words, at what fee level should one just do post tax investing? We will likely be in the 22% tax bracket this year.
There is a section in the wiki on that.

https://www.bogleheads.org/wiki/401(k)# ... re_choices

It would be good to do a dummy tax return though since you might be in an income range where other tax credits are being phased out so your effective marginal tax rate may be higher than the tax rate you see in the tax tables.

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Re: 457 worth it with these fees?

Post by willthrill81 » Thu Jan 18, 2018 4:51 pm

fortfun wrote:
Thu Jan 18, 2018 3:50 pm
John Laurens wrote:
Thu Jan 18, 2018 3:28 pm
Yes. I would then adjust my other accounts as part of my overall asset allocation. Did you know a nice feature of 457 plans is you can withdraw contributions any time without a 10% penalty. You do have to pay regular income taxes. Nice feature if you retire before 59.5.

Regards,
John
John, do you know how to make the calculation that would show at what ER a person would be better off doing after tax investment with a low fee company?
Thanks!
While keeping fees low should certainly be a priority, it need not drive the bus. Over a 20 year period, for instance, if $1k were invested monthly at a return of 7.35%, the final balance would be $511k, while a return of 7.0% (the .35% difference in the OP) would result in a balance of $492, a $19k difference. And that difference in purchasing power would actually be smaller due to the impact of inflation. $19k is nothing to sneeze at, but a 457 is not equivalent to a 401k, particularly if you're interested in retiring before age 59.5.

You can withdraw from a 457 plan with no penalty at any age after you separate from the employer that provided it. There are some situations where you can potentially make withdrawals while still with that employer. For those planning for retiring early, this is a fantastic benefit. They can pull all of their retirement income from their 457 before they hit age 59.5 with no complications. Yes, it's possible to take penalty-free early withdrawals from a 401k or traditional IRA, but these are somewhat complicated (72t/SEPP rules) and lock you in for five years or until you reach age 59.5, whichever comes later.

I've recently learned that my employer offers a 457 plan in addition to a 401k. The ERs are actually far lower in my 457 than in the 401k. With the 457, I can get an S&P 500 fund with an ER of .003%, .3 of a basis point, essentially free. Even the international funds have ERs of .07% or lower. The admin fees are about .13%.

Personally, I'm now going to max out my 457 before I touch the 401k.
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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by David Jay » Thu Jan 18, 2018 4:55 pm

fortfun wrote:
Thu Jan 18, 2018 4:45 pm
Please tell me if my calculation is in the ball park. I know it doesn't include compounding interest, etc.
It's not that good, because eventually you do have to pay taxes. But if you save 22% now and are taxed at, say, 12% in retirement then it is a great deal. It is worth it even if it had to come out at 22% because of the compounding. Not to mention the ease of management. I essentially 100% in tax-deferred and tax-exempt. I never have to keep track of tax lots or worry about first-in, first-out accounting. That is all moot inside a tax-deferred (401K/403b/457).

It is worth it for a employment-lifetime (say 30 years) at that kind of cost (ER=.54). ERs above 1% would cause me to look at it carefully and do the math.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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fortfun
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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by fortfun » Thu Jan 18, 2018 5:09 pm

David Jay wrote:
Thu Jan 18, 2018 4:55 pm
fortfun wrote:
Thu Jan 18, 2018 4:45 pm
Please tell me if my calculation is in the ball park. I know it doesn't include compounding interest, etc.
It's not that good, because eventually you do have to pay taxes. But if you save 22% now and are taxed at, say, 12% in retirement then it is a great deal. It is worth it even if it had to come out at 22% because of the compounding. Not to mention the ease of management. I essentially 100% in tax-deferred and tax-exempt. I never have to keep track of tax lots or worry about first-in, first-out accounting. That is all moot inside a tax-deferred (401K/403b/457).

It is worth it for a employment-lifetime (say 30 years) at that kind of cost (ER=.54). ERs above 1% would cause me to look at it carefully and do the math.
Thanks David!

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by fortfun » Thu Jan 18, 2018 5:34 pm

TwstdSista wrote:
Thu Jan 18, 2018 4:48 pm
A 0.54 ER isn't terrible. Assuming no other hidden fees, it should be worth it.

See: https://www.bogleheads.org/wiki/401%28k ... re_choices
How do you find those hidden fees?

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by TwstdSista » Thu Jan 18, 2018 5:48 pm

fortfun wrote:
Thu Jan 18, 2018 5:34 pm
TwstdSista wrote:
Thu Jan 18, 2018 4:48 pm
A 0.54 ER isn't terrible. Assuming no other hidden fees, it should be worth it.

See: https://www.bogleheads.org/wiki/401%28k ... re_choices
How do you find those hidden fees?
Very good question, yet I have no idea. Hopefully someone else can answer this question?

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by David Jay » Thu Jan 18, 2018 7:29 pm

fortfun wrote:
Thu Jan 18, 2018 5:34 pm
TwstdSista wrote:
Thu Jan 18, 2018 4:48 pm
A 0.54 ER isn't terrible. Assuming no other hidden fees, it should be worth it.

See: https://www.bogleheads.org/wiki/401%28k ... re_choices
How do you find those hidden fees?
Your employer should have a document called "summary plan description" for your 457. Check with HR.
Prediction is very difficult, especially about the future - Niels Bohr | To get the "risk premium", you really do have to take the risk - nisiprius

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Re: 457 worth it with these fees?

Post by John Laurens » Thu Jan 18, 2018 9:19 pm

fortfun wrote:
Thu Jan 18, 2018 3:50 pm
John Laurens wrote:
Thu Jan 18, 2018 3:28 pm
Yes. I would then adjust my other accounts as part of my overall asset allocation. Did you know a nice feature of 457 plans is you can withdraw contributions any time without a 10% penalty. You do have to pay regular income taxes. Nice feature if you retire before 59.5.

Regards,
John
John, do you know how to make the calculation that would show at what ER a person would be better off doing after tax investment with a low fee company?
Thanks!
I do not invest with Wealthfront, but they have a white paper discussing the point at which fees in pretax accounts make taxable investing more attractive. I believe their conclusion was around 1.7% total fees if there was no match. I don’t remember the tax bracket they used in their assumptions. In other white papers of theirs I’ve felt that they cherry picked data to fit their conclusions. At any rate, 0.54% fees would still make pretax investing attractive.

Regards,
John

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Re: 457 worth it with these fees?

Post by fortfun » Thu Jan 18, 2018 10:35 pm

willthrill81 wrote:
Thu Jan 18, 2018 4:51 pm
fortfun wrote:
Thu Jan 18, 2018 3:50 pm
John Laurens wrote:
Thu Jan 18, 2018 3:28 pm
Yes. I would then adjust my other accounts as part of my overall asset allocation. Did you know a nice feature of 457 plans is you can withdraw contributions any time without a 10% penalty. You do have to pay regular income taxes. Nice feature if you retire before 59.5.

Regards,
John
John, do you know how to make the calculation that would show at what ER a person would be better off doing after tax investment with a low fee company?
Thanks!
While keeping fees low should certainly be a priority, it need not drive the bus. Over a 20 year period, for instance, if $1k were invested monthly at a return of 7.35%, the final balance would be $511k, while a return of 7.0% (the .35% difference in the OP) would result in a balance of $492, a $19k difference. And that difference in purchasing power would actually be smaller due to the impact of inflation. $19k is nothing to sneeze at, but a 457 is not equivalent to a 401k, particularly if you're interested in retiring before age 59.5.

You can withdraw from a 457 plan with no penalty at any age after you separate from the employer that provided it. There are some situations where you can potentially make withdrawals while still with that employer. For those planning for retiring early, this is a fantastic benefit. They can pull all of their retirement income from their 457 before they hit age 59.5 with no complications. Yes, it's possible to take penalty-free early withdrawals from a 401k or traditional IRA, but these are somewhat complicated (72t/SEPP rules) and lock you in for five years or until you reach age 59.5, whichever comes later.

I've recently learned that my employer offers a 457 plan in addition to a 401k. The ERs are actually far lower in my 457 than in the 401k. With the 457, I can get an S&P 500 fund with an ER of .003%, .3 of a basis point, essentially free. Even the international funds have ERs of .07% or lower. The admin fees are about .13%.

Personally, I'm now going to max out my 457 before I touch the 401k.
Thanks WillThrill. My 401k fees are only .18 We do hope to retire a bit early (52 and 54). If my wife retires from her employer, I believe she can draw from her 403b the year she turns 55, my pension will make up the difference. Hopefully, my 401k will be the backup plan. 457 will be icing on the cake but could serve to help the kids with their college tuition (above the 529s). I'm trying to track down the other fees associated with the fund. I'll retire from my employer in 5.5 years and would roll the 457 into Vanguard or Fidelity.

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by fortfun » Thu Jan 18, 2018 10:56 pm

David Jay wrote:
Thu Jan 18, 2018 7:29 pm
fortfun wrote:
Thu Jan 18, 2018 5:34 pm
TwstdSista wrote:
Thu Jan 18, 2018 4:48 pm
A 0.54 ER isn't terrible. Assuming no other hidden fees, it should be worth it.

See: https://www.bogleheads.org/wiki/401%28k ... re_choices
How do you find those hidden fees?
Your employer should have a document called "summary plan description" for your 457. Check with HR.
Thank you!

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fortfun
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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by fortfun » Thu Jan 18, 2018 11:04 pm

fortfun wrote:
Thu Jan 18, 2018 10:56 pm
David Jay wrote:
Thu Jan 18, 2018 7:29 pm
fortfun wrote:
Thu Jan 18, 2018 5:34 pm
TwstdSista wrote:
Thu Jan 18, 2018 4:48 pm
A 0.54 ER isn't terrible. Assuming no other hidden fees, it should be worth it.

See: https://www.bogleheads.org/wiki/401%28k ... re_choices
How do you find those hidden fees?
Your employer should have a document called "summary plan description" for your 457. Check with HR.
Thank you!
Looks like the admin fee is .15. Bringing the total to almost .69%. Still a good deal?

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by Bfwolf » Thu Jan 18, 2018 11:09 pm

Probably, assuming you'll be in the 12% tax bracket in retirement vs 22% now.

Some of it depends on how long you'll keep the money in the 457. The longer you keep it there, the more the fees add up. If we're only talking 5 years before you can roll it over to an IRA, that's not so bad and the lower taxes in retirement plus the avoidance of capital gains and dividend taxes will almost certainly make up for the lower returns. If we were talking 25 years, it might be a different story (but it might not).
Last edited by Bfwolf on Thu Jan 18, 2018 11:11 pm, edited 1 time in total.

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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by David Jay » Thu Jan 18, 2018 11:11 pm

fortfun wrote:
Thu Jan 18, 2018 11:04 pm
Looks like the admin fee is .15. Bringing the total to almost .69%. Still a good deal?
Yes
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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by grabiner » Fri Jan 19, 2018 12:26 am

My rule of thumb is that you should only consider taxable investing if the extra cost, multiplied by the number of years you will be in the plan, exceeds twice your tax rate on qualified dividends (15% for most taxpayers, plus state tax). Thus even 1.5% is worth paying unless you expect to spend more than 20 years with the employer.

The reason the multiplication is important is that you can roll over your 401(k)/403(b) into an IRA when you leave, getting rid of the high fees but keeping the tax benefits.
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Re: 457 worth it with these fees?

Post by sergeant » Fri Jan 19, 2018 3:29 am

fortfun, sounds like you have a good plan for retirement. Just remember the withdraw options change when you go from a 457b to an IRA.
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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by David Jay » Fri Jan 19, 2018 8:21 am

grabiner wrote:
Fri Jan 19, 2018 12:26 am
My rule of thumb is that you should only consider taxable investing if the extra cost, multiplied by the number of years you will be in the plan, exceeds twice your tax rate on qualified dividends (15% for most taxpayers, plus state tax). Thus even 1.5% is worth paying unless you expect to spend more than 20 years with the employer.

The reason the multiplication is important is that you can roll over your 401(k)/403(b) into an IRA when you leave, getting rid of the high fees but keeping the tax benefits.
bookmarked!
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Re: Formula to determine if Pre-tax is worth Higher Fees

Post by fortfun » Fri Jan 19, 2018 11:02 am

grabiner wrote:
Fri Jan 19, 2018 12:26 am
My rule of thumb is that you should only consider taxable investing if the extra cost, multiplied by the number of years you will be in the plan, exceeds twice your tax rate on qualified dividends (15% for most taxpayers, plus state tax). Thus even 1.5% is worth paying unless you expect to spend more than 20 years with the employer.

The reason the multiplication is important is that you can roll over your 401(k)/403(b) into an IRA when you leave, getting rid of the high fees but keeping the tax benefits.
I'm planning to retire from this position in 5.5 years (age 50). So, I guess that short time makes it especially appealing, yes? If I roll the 457 into an IRA can I still access it any time?
Thanks!

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Roll over 457, can it still be accessed anytime w/o penalty?

Post by fortfun » Fri Jan 19, 2018 11:09 am

[Thread merged into here, see below. --admin LadyGeek]

If you roll over a 457 into an IRA can it still be accessed at any time, or does it revert to the 59.5 rule?

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Re: Roll over 457, can it still be accessed anytime w/o penalty?

Post by jebmke » Fri Jan 19, 2018 11:13 am

fortfun wrote:
Fri Jan 19, 2018 11:09 am
If you roll over a 457 into an IRA can it still be accessed at any time, or does it revert to the 59.5 rule?
I believe that once an employer plan is rolled to an IRA then the laws governing IRAs prevail. For example, in my state (MD) distributions from an employer plan may be exempt from state income taxes for retirees (age 65 and older). If the employer plan funds are rolled over to an IRA, the distributions from the IRA do not qualify for that exemption and are subject to state income tax.

However, I would recommend that you review the IRS publications on IRAs. Pub 590A (Contributions) and 590B (Distributions) are the most relevant.
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Re: Roll over 457, can it still be accessed anytime w/o penalty?

Post by Mudpuppy » Fri Jan 19, 2018 11:26 am

fortfun wrote:
Fri Jan 19, 2018 11:09 am
If you roll over a 457 into an IRA can it still be accessed at any time, or does it revert to the 59.5 rule?
Once you roll it over, it's an IRA, not a 457 plan. So it becomes subject to the penalty for withdrawals before 59.5 years of age. If you want to keep the penalty-free early withdrawal option, you have to keep the assets with the former employer's 457 plan.

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Re: Roll over 457, can it still be accessed anytime w/o penalty?

Post by fortfun » Fri Jan 19, 2018 11:28 am

Mudpuppy wrote:
Fri Jan 19, 2018 11:26 am
fortfun wrote:
Fri Jan 19, 2018 11:09 am
If you roll over a 457 into an IRA can it still be accessed at any time, or does it revert to the 59.5 rule?
Once you roll it over, it's an IRA, not a 457 plan. So it becomes subject to the penalty for withdrawals before 59.5 years of age. If you want to keep the penalty-free early withdrawal option, you have to keep the assets with the former employer's 457 plan.
Thanks Mudpuppy. That's what I was afraid of. The fees with the 457 provider are a bit high...

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Re: 457 worth it with these fees?

Post by Mudpuppy » Fri Jan 19, 2018 11:38 am

Is this a government 457 plan or a non-government 457 plan? The answer greatly affects the distribution options and protections for the assets while you are employed, and, therefore, the decision about whether or not it is better to invest in the 457 plan or in a taxable account. Schools can be either public or private, so I don't want to assume that this is a public school and a governmental 457 plan.

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Re: 457 worth it with these fees?

Post by willthrill81 » Fri Jan 19, 2018 11:56 am

fortfun wrote:
Thu Jan 18, 2018 10:35 pm
Thanks WillThrill. My 401k fees are only .18 We do hope to retire a bit early (52 and 54). If my wife retires from her employer, I believe she can draw from her 403b the year she turns 55, my pension will make up the difference. Hopefully, my 401k will be the backup plan. 457 will be icing on the cake but could serve to help the kids with their college tuition (above the 529s). I'm trying to track down the other fees associated with the fund. I'll retire from my employer in 5.5 years and would roll the 457 into Vanguard or Fidelity.
Sounds good. Just be aware that 457 fees rolled into any an IRA lose their 'no early withdrawal penalty' benefit.

Personally, I think that a small increase in fees with a 457 would be worth avoiding even the potential of an early withdrawal penalty on 401k assets, unless one is nearly certain that no withdrawals will be made prior to age 59.5. Since you're planning to retire significantly before 59.5, I would at least partially fund the 457; the fee difference is not enough to offset the advantage of no early withdrawal penalty or the cumbersomeness of 72t/SEPP early withdrawals, IMO. While your wife might be planning to work until 55, you never know if that plan might get derailed and her retirement come earlier than anticipated.

Yes, 401k and 403b accounts with an employer can be accessed penalty free as long you don't separate from that employer until the year you turn 55. Accounts from earlier employers are not eligible for this benefit.
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Re: 457 worth it with these fees?

Post by fortfun » Fri Jan 19, 2018 12:07 pm

sergeant wrote:
Fri Jan 19, 2018 3:29 am
fortfun, sounds like you have a good plan for retirement. Just remember the withdraw options change when you go from a 457b to an IRA.
Thanks sergeant--just realized this. Bummer...

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fortfun
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Re: 457 worth it with these fees?

Post by fortfun » Fri Jan 19, 2018 12:08 pm

Mudpuppy wrote:
Fri Jan 19, 2018 11:38 am
Is this a government 457 plan or a non-government 457 plan? The answer greatly affects the distribution options and protections for the assets while you are employed, and, therefore, the decision about whether or not it is better to invest in the 457 plan or in a taxable account. Schools can be either public or private, so I don't want to assume that this is a public school and a governmental 457 plan.
Mudpuppy, this is a public school, so I assume government. How can I tell?

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fortfun
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Re: 457 worth it with these fees?

Post by fortfun » Fri Jan 19, 2018 12:10 pm

willthrill81 wrote:
Fri Jan 19, 2018 11:56 am
fortfun wrote:
Thu Jan 18, 2018 10:35 pm
Thanks WillThrill. My 401k fees are only .18 We do hope to retire a bit early (52 and 54). If my wife retires from her employer, I believe she can draw from her 403b the year she turns 55, my pension will make up the difference. Hopefully, my 401k will be the backup plan. 457 will be icing on the cake but could serve to help the kids with their college tuition (above the 529s). I'm trying to track down the other fees associated with the fund. I'll retire from my employer in 5.5 years and would roll the 457 into Vanguard or Fidelity.
Sounds good. Just be aware that 457 fees rolled into any an IRA lose their 'no early withdrawal penalty' benefit.

Personally, I think that a small increase in fees with a 457 would be worth avoiding even the potential of an early withdrawal penalty on 401k assets, unless one is nearly certain that no withdrawals will be made prior to age 59.5. Since you're planning to retire significantly before 59.5, I would at least partially fund the 457; the fee difference is not enough to offset the advantage of no early withdrawal penalty or the cumbersomeness of 72t/SEPP early withdrawals, IMO. While your wife might be planning to work until 55, you never know if that plan might get derailed and her retirement come earlier than anticipated.

Yes, 401k and 403b accounts with an employer can be accessed penalty free as long you don't separate from that employer until the year you turn 55. Accounts from earlier employers are not eligible for this benefit.
Thanks Willthrill. Very useful info here.

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Re: 457 worth it with these fees?

Post by retiredjg » Fri Jan 19, 2018 12:17 pm

I think the plan is worth using (just for that one fund) if you have a need for more tax-deferred savings. Are you sure you actually need more?

You are already filling a 401k and possibly filling a 403b. What about other tax-deferred or tax-advantaged accounts - HSAs, IRAs, Roth IRAs?

The pension(s) could argue against more tax-deferral (you may never fall into a lower bracket). The early retirement could argue for it (more time for Roth conversions before RMDs). Of course your tax bracket while working and while retired makes a difference.

Not saying it isn't a good idea, but it is not clear you have contemplated if you need actually more tax-deferred space.

If you do use the 457b, rolling it into IRA will eliminate the penalty free early withdrawal option.

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Re: 457 worth it with these fees?

Post by retiredjg » Fri Jan 19, 2018 12:20 pm

fortfun wrote:
Thu Jan 18, 2018 10:35 pm
If my wife retires from her employer, I believe she can draw from her 403b the year she turns 55....
Her plan can only allow this (without a SEPP arrangement) if she is actually 55 (or older) in the year she retires. And only some plans do allow it.

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Re: 457 worth it with these fees?

Post by Admiral » Fri Jan 19, 2018 12:22 pm

willthrill81 wrote:
Thu Jan 18, 2018 4:51 pm
fortfun wrote:
Thu Jan 18, 2018 3:50 pm
John Laurens wrote:
Thu Jan 18, 2018 3:28 pm
Yes. I would then adjust my other accounts as part of my overall asset allocation. Did you know a nice feature of 457 plans is you can withdraw contributions any time without a 10% penalty. You do have to pay regular income taxes. Nice feature if you retire before 59.5.

Regards,
John
John, do you know how to make the calculation that would show at what ER a person would be better off doing after tax investment with a low fee company?
Thanks!
While keeping fees low should certainly be a priority, it need not drive the bus. Over a 20 year period, for instance, if $1k were invested monthly at a return of 7.35%, the final balance would be $511k, while a return of 7.0% (the .35% difference in the OP) would result in a balance of $492, a $19k difference. And that difference in purchasing power would actually be smaller due to the impact of inflation. $19k is nothing to sneeze at, but a 457 is not equivalent to a 401k, particularly if you're interested in retiring before age 59.5.

You can withdraw from a 457 plan with no penalty at any age after you separate from the employer that provided it. There are some situations where you can potentially make withdrawals while still with that employer. For those planning for retiring early, this is a fantastic benefit. They can pull all of their retirement income from their 457 before they hit age 59.5 with no complications. Yes, it's possible to take penalty-free early withdrawals from a 401k or traditional IRA, but these are somewhat complicated (72t/SEPP rules) and lock you in for five years or until you reach age 59.5, whichever comes later.

I've recently learned that my employer offers a 457 plan in addition to a 401k. The ERs are actually far lower in my 457 than in the 401k. With the 457, I can get an S&P 500 fund with an ER of .003%, .3 of a basis point, essentially free. Even the international funds have ERs of .07% or lower. The admin fees are about .13%.

Personally, I'm now going to max out my 457 before I touch the 401k.
We have one and this is precisely why we use it (that, and the tax savings obviously). 100% in VINIX. The fees are $12 per year at the moment.

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Re: 457 worth it with these fees?

Post by Mudpuppy » Fri Jan 19, 2018 12:34 pm

fortfun wrote:
Fri Jan 19, 2018 12:08 pm
Mudpuppy wrote:
Fri Jan 19, 2018 11:38 am
Is this a government 457 plan or a non-government 457 plan? The answer greatly affects the distribution options and protections for the assets while you are employed, and, therefore, the decision about whether or not it is better to invest in the 457 plan or in a taxable account. Schools can be either public or private, so I don't want to assume that this is a public school and a governmental 457 plan.
Mudpuppy, this is a public school, so I assume government. How can I tell?
Public schools are typically government plans. One key "tell" is if you can roll the plan assets over after separating from the employer. A government 457 plan allows rollovers to IRAs. Non-government 457 plans do not allow rollovers to IRAs.

Another key "tell" is if you have the option to leave the assets in the employer's plan after separating from the employer. Government 457 plans allow this once the plan reaches a small balance (I think $5000, but not positive on the amount). Non-government 457 plans usually require distributions upon separation (either a lump-sum, or evenly distributed over x years).

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Re: 457 worth it with these fees?

Post by LadyGeek » Fri Jan 19, 2018 3:58 pm

fortfun - In order to give appropriate advice, it's best to keep all the information in one spot. I merged your two additional threads asking about your 457 plan back into the original. While they may seem like different questions to you, they're all related to your portfolio. We can give more informed assistance if we can see the entire (combined) discussion.

The combined thread is now in the Investing - Help with Personal Investments forum (457 help).

Also, consider posting your portfolio in this thread using the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions related to your portfolio, ask them here.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: 457 worth it with these fees?

Post by fortfun » Fri Jan 19, 2018 4:55 pm

LadyGeek wrote:
Fri Jan 19, 2018 3:58 pm
fortfun - In order to give appropriate advice, it's best to keep all the information in one spot. I merged your two additional threads asking about your 457 plan back into the original. While they may seem like different questions to you, they're all related to your portfolio. We can give more informed assistance if we can see the entire (combined) discussion.

The combined thread is now in the Investing - Help with Personal Investments forum (457 help).

Also, consider posting your portfolio in this thread using the Asking Portfolio Questions format. It will make you think about the "big picture" while giving us the information we need to point you in the right direction.

If you have any questions related to your portfolio, ask them here.
Thanks LadyGeek!

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Re: 457 worth it with these fees?

Post by retiredjg » Sun Jan 21, 2018 1:54 pm

I saw in another thread that your family is already filling a 401k, a 403b, and a 457b and here you are wondering if you should fill yet another 457b.

As I mentioned earlier, it is possible to have too much in tax-deferred status. I think you need to give some thought to that.

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Re: 457 worth it with these fees?

Post by fortfun » Sun Jan 21, 2018 2:11 pm

retiredjg wrote:
Sun Jan 21, 2018 1:54 pm
I saw in another thread that your family is already filling a 401k, a 403b, and a 457b and here you are wondering if you should fill yet another 457b.

As I mentioned earlier, it is possible to have too much in tax-deferred status. I think you need to give some thought to that.
Thanks retiredjg. This is true. Sadly, we didn't save as much as we should have in our 20s and 30s. Trying to catch up a bit now. However, I do think it is time to put some extra towards the mortgage (3% - 130k) and get that paid off before retirement in 8 years or so... Thanks for your help.

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Re: 457 worth it with these fees?

Post by retiredjg » Sun Jan 21, 2018 2:20 pm

Paying off the mortgage is always a decent idea. Saving in Roth accounts and taxable accounts is another good idea.

I don't think you have a problem saving a lot. I think you may be putting too much into tax-deferral. That may come back to haunt you when you are older. If you don't have a lot in taxable to pay taxes with, you won't even be able to do Roth conversions if you retire early.

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Re: 457 worth it with these fees?

Post by fortfun » Sun Jan 21, 2018 2:30 pm

retiredjg wrote:
Sun Jan 21, 2018 2:20 pm
Paying off the mortgage is always a decent idea. Saving in Roth accounts and taxable accounts is another good idea.

I don't think you have a problem saving a lot. I think you may be putting too much into tax-deferral. That may come back to haunt you when you are older. If you don't have a lot in taxable to pay taxes with, you won't even be able to do Roth conversions if you retire early.
My pension starts at 50 (5.5yrs). I'll probably work part time until my wife turns 55 (currently 46) and then we can start drawing from her 403b, 457, and our Roths. My 401k will be used in emergency after 59.5 or until I'm required to withdraw. My pension will pay about 65k a year until we both die. We should have each saved 1M by the time we need to access them. We shouldn't have any debt. Kid's college should be pretty well taken care of with 529s. We will probably have a pretty frugal retirement but that is how we are used to living anyway. I do very much appreciate the help of Bogleheads--I only wish I knew about them earlier!

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Re: 457 worth it with these fees?

Post by retiredjg » Sun Jan 21, 2018 3:07 pm

If you need to change anything, I might consider putting more into the 2 457b's (even though one is higher cost) and less into 401/403b. That would make more money available prior to 59.5 without having to do a SEPP or something.

Keep in mind that moving her 403b to IRA will eliminate being able to use it at age 55 (assuming her employer's plan does allow that). Same with 457bs. So for that higher cost 457b, maybe just save enough for a few year's expenses.

I think you'll be in very good shape. I just think your RMDs may end up being much more than you anticipate if you continue to save so much tax deferred.

Does either the 401k or 403b have a Roth option?

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Re: 457 worth it with these fees?

Post by fortfun » Sun Jan 21, 2018 3:58 pm

retiredjg wrote:
Sun Jan 21, 2018 3:07 pm
If you need to change anything, I might consider putting more into the 2 457b's (even though one is higher cost) and less into 401/403b. That would make more money available prior to 59.5 without having to do a SEPP or something.

Keep in mind that moving her 403b to IRA will eliminate being able to use it at age 55 (assuming her employer's plan does allow that). Same with 457bs. So for that higher cost 457b, maybe just save enough for a few year's expenses.

I think you'll be in very good shape. I just think your RMDs may end up being much more than you anticipate if you continue to save so much tax deferred.

Does either the 401k or 403b have a Roth option?
Thanks retiredjg. My wife's 403b is in fidelity spartan funds. So, I don't think we will convert to IRA. I think we will just keep it there but I don't know anything about withdrawing from a 403b vs IRA. Her 457 does have a Roth option. We could change that to Roth. I'm not sure if our 401k or 403b has that option. I will check. How do we know if employer will allow 403b to be used if she retires at 55? I thought that was a requirement. The university would need to give permission? We've been counting on her being able to withdraw from the 403b (fidelity spartan funds). Thanks for your suggestions (again)!

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Re: 457 worth it with these fees?

Post by retiredjg » Mon Jan 22, 2018 9:14 am

fortfun wrote:
Sun Jan 21, 2018 3:58 pm
Thanks retiredjg. My wife's 403b is in fidelity spartan funds. So, I don't think we will convert to IRA. I think we will just keep it there but I don't know anything about withdrawing from a 403b vs IRA.
You should find out. It might be very liberal or quite restrictive.

How do we know if employer will allow 403b to be used if she retires at 55? I thought that was a requirement.
I thought it was a requirement as well, but it has been said here that is one of the things the law allows but the plan can restrict. Not sure if that is fact or not, but you should find out what her plan does allow just to be sure.

The way to find this out (and your first question as well) is to look at the documents you have concerning the various plans. It is usually called something like a "Summary plan document".

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Re: 457 worth it with these fees?

Post by fortfun » Mon Jan 22, 2018 10:14 am

retiredjg wrote:
Mon Jan 22, 2018 9:14 am
fortfun wrote:
Sun Jan 21, 2018 3:58 pm
Thanks retiredjg. My wife's 403b is in fidelity spartan funds. So, I don't think we will convert to IRA. I think we will just keep it there but I don't know anything about withdrawing from a 403b vs IRA.
You should find out. It might be very liberal or quite restrictive.

How do we know if employer will allow 403b to be used if she retires at 55? I thought that was a requirement.
I thought it was a requirement as well, but it has been said here that is one of the things the law allows but the plan can restrict. Not sure if that is fact or not, but you should find out what her plan does allow just to be sure.

The way to find this out (and your first question as well) is to look at the documents you have concerning the various plans. It is usually called something like a "Summary plan document".
Will do! Thanks retiredjg!

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