Does this make sense (457B)

Non-investing personal finance issues including insurance, credit, real estate, taxes, employment and legal issues such as trusts and wills
Post Reply
kobbiemandd
Posts: 45
Joined: Fri Mar 18, 2011 6:54 pm

Does this make sense (457B)

Post by kobbiemandd » Thu Dec 07, 2017 8:11 am

I will be retiring in January, 2018. My employer will cut me a check for 20K because of unused time off. I have a pension coming from this employer and have rollover IRAs from other employers but never enrolled in the 457B plan they offer. Does it make sense to enroll then put this 20K into the 457B
Plan. I am 66 years old so I would have to start taking distributions in 4 years. They offer stable value fund that is paying higher than most longer term CDs. I don't really need the money now. My income will certainly be lower than when I am working but I am not a high income earner.

Any insight appreciated.

retiredjg
Posts: 30785
Joined: Thu Jan 10, 2008 12:56 pm

Re: Does this make sense (457B)

Post by retiredjg » Thu Dec 07, 2017 8:38 am

kobbiemandd wrote:
Thu Dec 07, 2017 8:11 am
I will be retiring in January, 2018. My employer will cut me a check for 20K because of unused time off. I have a pension coming from this employer and have rollover IRAs from other employers but never enrolled in the 457B plan they offer. Does it make sense to enroll then put this 20K into the 457B
Plan. I am 66 years old so I would have to start taking distributions in 4 years. They offer stable value fund that is paying higher than most longer term CDs. I don't really need the money now. My income will certainly be lower than when I am working but I am not a high income earner.

Any insight appreciated.
I don't think you can even do what you are considering. The $20k won't be yours until after you retire. Even if the 457b is opened before you retire, you could not put in more than you earn in 2018 and it seems unlikely that would be as much as $20k. And usually (maybe not always?) a 457b has to be funded from your paycheck.

There might be a twist though - maybe you could open the 457b and stay on the books drawing salary for as many days as it takes to burn up your unused time off and have it all put into the 457b if your plan allows that (many don't). This would reduce your 2018 income by $20k.

I'd probably just take the check. It could make a nice buffer for unexpected expenses during the transition. Chances are you won't need it. But you could use it to pay the taxes as you do Roth conversions on your rollover IRAs over the next 3 or 4 years.

NightFall
Posts: 222
Joined: Wed Mar 12, 2014 4:38 pm

Re: Does this make sense (457B)

Post by NightFall » Thu Dec 07, 2017 9:21 am

Check your plan documents. If the $20K is paid as W2 wages, then there's a chance that you may be able to defer it into your 457b. I'm pretty sure I've seen one set of documents that explicitly stated that at least a portion of unpaid vacation could be placed in a retirement account upon retirement. So as to whether it's possible, it's best to talk to HR.

As to whether or not it makes sense, if you don't need the money now, it could make sense to defer it into the future and allow it to grow tax free. I would expect that your income will be quite low for 2018 compared to prior years, so the tax rate arbitration doesn't make as much sense as it would for someone still working and expecting a lower tax rate in the future. I don't know your age, but you should think about RMDs from that account. Some employers also offer ROTH options that can make sense if you're expecting to be in a low tax bracket.

rterickson
Posts: 75
Joined: Fri May 01, 2015 3:48 pm

Re: Does this make sense (457B)

Post by rterickson » Thu Dec 07, 2017 5:00 pm

My employer pays for unused vacation and 30% of unused sick leave. It's common for outgoing retirees here to use these payments to max out their 457(b) and HSA accounts before taking any (taxable) cash payments.

For age 50+, the 457(b) contribution limit for 2018 is $24,500.

Thesaints
Posts: 912
Joined: Tue Jun 20, 2017 12:25 am

Re: Does this make sense (457B)

Post by Thesaints » Thu Dec 07, 2017 5:02 pm

It certainly makes senso, provided payment can be applied.

User avatar
sergeant
Posts: 615
Joined: Tue Dec 04, 2007 11:13 pm

Re: Does this make sense (457B)

Post by sergeant » Thu Dec 07, 2017 5:16 pm

Do it.
Lincoln 3 EOW!

Post Reply