Roth 457 Fund choices

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jane_
Posts: 21
Joined: Tue Feb 21, 2017 8:58 am
Location: Portland, OR

Roth 457 Fund choices

Post by jane_ » Tue Oct 03, 2017 2:43 pm

I currently have $40k+ in 2 Vanguard index funds. (VTSAX 50% and VTIAX 50%). I've maxed my Vanguard Roth for the year.

My employer offers a Roth 457. Here are my top options for funds:

1. Do I want to sell some of my Vanguard funds and switch to my employer's Roth?
2. What am I missing?

Small Company Stock Option:
30% BlackRock Russell 2000 Index Fund
35% Callan Small Equity Fund
35% DFA US Small Cap Portfolio (DFSTX)

International Stock Option:
25% AQR ACWI ex-US Fund
10% DFA Emering Markets Core Equity (DFCEX)
15% DFA International Core Equity (DFIEX
25% Lazard International Equity
25% BlackRock ACWI ex-US Index Fund

Large Company Growth Stock Option:
100% BlackRock Russell 1000 Growth Index Fund

Socially Responsible Investment Option:
100% TIAA-CREF Social Choice Equity Fund (TISCX)

Stock Index Option:
100% BlackRock Russell 3000 Index Fund
Good ideas, do them right away | Other ideas, to the back burner

KlangFool
Posts: 6710
Joined: Sat Oct 11, 2008 12:35 pm

Re: Roth 457 Fund choices

Post by KlangFool » Tue Oct 03, 2017 2:59 pm

OP,

457 has no early withdrawal penalty. So, why would you choose a Roth 457 instead of a Trad. (pre-tax) 457 option?

KlangFool

jane_
Posts: 21
Joined: Tue Feb 21, 2017 8:58 am
Location: Portland, OR

Re: Roth 457 Fund choices

Post by jane_ » Tue Oct 03, 2017 4:12 pm

As I understand it, I am going to be in a higher tax bracket in the future, so I'd rather pay taxes on the investment now.

I have (pre)elementary knowledge on the subject so feel free to let me know what I might be missing.
Good ideas, do them right away | Other ideas, to the back burner

KlangFool
Posts: 6710
Joined: Sat Oct 11, 2008 12:35 pm

Re: Roth 457 Fund choices

Post by KlangFool » Tue Oct 03, 2017 5:30 pm

jane_ wrote:
Tue Oct 03, 2017 4:12 pm
As I understand it, I am going to be in a higher tax bracket in the future, so I'd rather pay taxes on the investment now.

I have (pre)elementary knowledge on the subject so feel free to let me know what I might be missing.
jane,

That is the wrong way to look at this. It should be a comparison between NOW and when after you RETIRE. For 90+% of people, Roth 457/401K is the wrong answer.

What is your current tax rate? Do you pay state income tax? Do you qualify for a pension?

KlangFool
Last edited by KlangFool on Tue Oct 03, 2017 5:49 pm, edited 1 time in total.

retiredjg
Posts: 30321
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth 457 Fund choices

Post by retiredjg » Tue Oct 03, 2017 5:35 pm

I'd actually word it "after you retire".

I think some people get confused here because they translate "when you retire" to mean you situation at the time of retirement (i.e. your situation before and leading up to retirement) not after retirement.

KlangFool
Posts: 6710
Joined: Sat Oct 11, 2008 12:35 pm

Re: Roth 457 Fund choices

Post by KlangFool » Tue Oct 03, 2017 5:49 pm

retiredjg wrote:
Tue Oct 03, 2017 5:35 pm
I'd actually word it "after you retire".

I think some people get confused here because they translate "when you retire" to mean you situation at the time of retirement (i.e. your situation before and leading up to retirement) not after retirement.
Thanks for the correction.

KlangFool

retiredjg
Posts: 30321
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth 457 Fund choices

Post by retiredjg » Tue Oct 03, 2017 6:14 pm

Well, I thought of it as a "clarification" for those who don't yet know the difference. I'm pretty sure you do know the difference. :happy

jane_
Posts: 21
Joined: Tue Feb 21, 2017 8:58 am
Location: Portland, OR

Re: Roth 457 Fund choices

Post by jane_ » Wed Oct 04, 2017 6:59 pm

KlangFool wrote:
Tue Oct 03, 2017 5:30 pm


What is your current tax rate? Do you pay state income tax? Do you qualify for a pension?

KlangFool
Current tax rate: 10%
In 1-2 years I will be at a 25% tax rate. Currently I qualify for a pension- the amount will be about half of my paycheck in the last few years of work before retirement. However, it looks like I may need to move to the private sector for a few years in order to get the higher income/25% tax rate, thus not contributing to the pension system. I'd probably move back to the pension-employer after more education.

Oregon (where I live) income tax is 9% for me.
Good ideas, do them right away | Other ideas, to the back burner

KlangFool
Posts: 6710
Joined: Sat Oct 11, 2008 12:35 pm

Re: Roth 457 Fund choices

Post by KlangFool » Wed Oct 04, 2017 7:37 pm

jane_ wrote:
Wed Oct 04, 2017 6:59 pm
KlangFool wrote:
Tue Oct 03, 2017 5:30 pm


What is your current tax rate? Do you pay state income tax? Do you qualify for a pension?

KlangFool
Current tax rate: 10%
In 1-2 years I will be at a 25% tax rate. Currently I qualify for a pension- the amount will be about half of my paycheck in the last few years of work before retirement. However, it looks like I may need to move to the private sector for a few years in order to get the higher income/25% tax rate, thus not contributing to the pension system. I'd probably move back to the pension-employer after more education.

Oregon (where I live) income tax is 9% for me.
jane,

Do you qualify for the following tax credits if you contribute to Trad. 457?

EITC

https://en.wikipedia.org/wiki/Earned_income_tax_credit

Saver's Credit

https://www.bogleheads.org/wiki/Saver%27s_credit

KlangFool

retiredjg
Posts: 30321
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth 457 Fund choices

Post by retiredjg » Thu Oct 05, 2017 5:08 am

While you are looking at your taxes....let's try to nail down your tax bracket. It's part of making this decision.

Compare your taxable income, line 43 of Form 1040, to this chart.

http://www.moneychimp.com/features/tax_brackets.htm

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FiveK
Posts: 2880
Joined: Sun Mar 16, 2014 2:43 pm

Re: Roth 457 Fund choices

Post by FiveK » Thu Oct 05, 2017 5:27 am

KlangFool wrote:
Wed Oct 04, 2017 7:37 pm
Do you qualify for the following tax credits if you contribute to Trad. 457?
EITC
https://en.wikipedia.org/wiki/Earned_income_tax_credit
Saver's Credit
https://www.bogleheads.org/wiki/Saver%27s_credit
KlangFool
retiredjg wrote:
Thu Oct 05, 2017 5:08 am
While you are looking at your taxes....let's try to nail down your tax bracket. It's part of making this decision.
Compare your taxable income, line 43 of Form 1040, to this chart.
http://www.moneychimp.com/features/tax_brackets.htm
The marginal saving rate can be much higher than the nominal tax bracket when credits such as EITC and saver's are in play. Calculating that marginal rate, either "by hand" using TurboTax, etc., or a spreadsheet such as the one in Tools and calculators - Personal_finance_toolbox, is needed here.

retiredjg
Posts: 30321
Joined: Thu Jan 10, 2008 12:56 pm

Re: Roth 457 Fund choices

Post by retiredjg » Thu Oct 05, 2017 5:46 am

This may be correct, but I believe this poster may be confusing tax rate and tax bracket and this is one way to clarify that.

I agree that using traditional 457 is likely better than Roth 457 if it means the poster can qualify for a tax credit.

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