457b and/or Roth through employer

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Topic Author
71GTO
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Joined: Fri Sep 11, 2020 10:10 am

457b and/or Roth through employer

Post by 71GTO »

I'm new to investing even with basic mutual fund or managed investing. I work for a state government and I am in a pension system. They offer deferred compensation plans that are managed by Prudential with automatic payroll deductions, a 457b which my contributions would be pretax, I would not be able to withdraw the money until retirement or in an emergency situation I could petition them to withdraw the money. My choice of investing is low, medium or higher risk. They also offer a Roth IRA. A few years ago, I signed up for the 457b medium risk at the minimum contribution just to get something going and having it automatically taken out made sure it would happen. Now I'd like to open a Roth IRA and probably have it in a managed fund of some sort for now (I do not feel comfortable making my own picks yet), I'm not sure if I should do it through work, or on my own... There won't be a pretax advantage. I don't know how much the management fee advantage to being part of a huge (state employee fund management company). I can't find the fees anywhere. I'd like the idea of maybe a little more control and incase of emergency not having to petition for my money, but hopefully that won't be an issue. So, long story short i'd like to start putting putting more away for retirement, is it better to stick with the employer offered options through Prudential and have it automatic or go out and get my own Roth IRA through a Fidelity or something similar if I am looking for a more managed investing option until I can start doing more on my own and what should I look for with the companies to figure this out on my own?

I am in a NJ Deffered comp program and in the state pension plan.

Current market value of the Deferred comp is $5200. i am currently contributing $30 biweekly.

NJ Deferred comp. Prudential does offer a Roth IRA

My wife(43)is in a public employee pension plan as well and pays into social security. She contributes $35 by weekly for ten months of the year into a 403b that is managed by a local financial advisor/firm that is brought in by the district. I believe that her 403b plan is a Roth IRA already, but she needs to confirm this with the advisor and with school starting under the current pandemic environment its a little hard to get info now from her... She has $2200 in the account. I wil try to decipher one of her statements to see what she is invested in.

We have no other accounts with Funds. i do have an old Scottrade account, but no stock...

Tax status is filing joint 22% fed and 5.53% NJ.

I can't say with certainly right now exactly how much, maybe $100-200 a month, I can freeze the deferred comp and add that into the number if I go to an outside firm. My original thought which is the same as why I started the deferred comp is to just get something going now and increase funding as I can and I thought a Roth IRA would be best for now.


These are the funds I am in with the 457b
y Investments Table
Name Asset Class Holdings
DCP Stable Value Fund Stable Value 4.70%

Core Bond Enhanced Index / PGIM Fund Fixed Income - Core Bond 8.51%

PIMCO All Asset Fund Institutional Class Allocation - Tactical Allocation 8.77%

Large Cap Value / LSV Asset Management Large Cap - Value 16.08%

Polen Capital Large Cap Growth Large Cap - Growth 16.57%

Small Cap Value / TBCAM Fund Small Cap - Value 10.12%

Small Cap Growth II Fund (managed by Wellington) Small Cap - Growth 9.90%

International Blend / Lazard Fund International - Blend 19.27%

Invesco Oppenheimer Developing Markets Fund Class Y International - Emerging Market 6.08%
Last edited by 71GTO on Tue Sep 15, 2020 6:03 pm, edited 5 times in total.
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Duckie
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Re: 403b and/or Roth through employer

Post by Duckie »

71GTO, welcome to the forum.
71GTO wrote:I work for a state government and I am in a pension system. They offer deferred compensation plans that are managed by Prudential with automatic payroll deductions,
Are these DCPs also known as a 457b? What state? What are the options/costs? You have an excellent DCP Stable Value Fund so the other options may be very good, too.
So, long story short i'd like to start putting putting more away for retirement, is it better to stick with the employer offered options through Prudential and have it automatic or go out and get my own Roth IRA through a Fidelity or something similar if I am looking for a more managed investing option until I can start doing more on my own and what should I look for with the companies to figure this out on my own?
Do not open a personal IRA through your employer. Open it at a decent brokerage like Fidelity. If you want a managed fund (not recommended) use a target-date index fund. For example (FIHFX) Fidelity Freedom Index 2035 Fund Investor Class (0.12%) is currently 50% US stocks, 33% international stocks, and 17% US bonds/cash.

Personally, I would put all your bond allocation in the 403b (Stable Value & Core Bond), just stocks in your Roth IRA (FZROX for US & FZILX for international) and fill the remainder of the 403b with stock funds.
These are the funds I am in with the 403b

Name Asset Class Holdings
DCP Stable Value Fund Stable Value 4.70%

Core Bond Enhanced Index / PGIM Fund Fixed Income - Core Bond 8.51%

PIMCO All Asset Fund Institutional Class Allocation - Tactical Allocation 8.77%

Large Cap Value / LSV Asset Management Large Cap - Value 16.08%

Polen Capital Large Cap Growth Large Cap - Growth 16.57%

Small Cap Value / TBCAM Fund Small Cap - Value 10.12%

Small Cap Growth II Fund (managed by Wellington) Small Cap - Growth 9.90%

International Blend / Lazard Fund International - Blend 19.27%

Invesco Oppenheimer Developing Markets Fund Class Y International - Emerging Market 6.08%
What are the plan expense ratios for these funds? Are there any other options you could choose? You are duplicating things here.
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FiveK
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Re: 403b and/or Roth through employer

Post by FiveK »

71GTO, welcome to the forum.
71GTO wrote: Fri Sep 11, 2020 11:02 am I'm new to investing even with basic mutual fund or managed investing. I work for a state government and I am in a pension system. They offer deferred compensation plans that are managed by Prudential with automatic payroll deductions, a 403b which my contributions would be pretax, I would not be able to withdraw the money until retirement or in an emergency situation I could petition them to withdraw the money.
Unfortunately, insurance companies such as Prudential are often associated with high costs to the employees. You'll need to find the specifics for your plan.
My choice of investing is low, medium or higher risk. They also offer a Roth IRA. A few years ago, I signed up for the 403b medium risk at the minimum contribution just to get something going and having it automatically taken out made sure it would happen. Now I'd like to open a Roth IRA and probably have it in a managed fund of some sort for now (I do not feel comfortable making my own picks yet), I'm not sure if I should do it through work, or on my own...
Run fast and far from having Prudential handle your Roth IRA. Any of Fidelity, Schwab, or Vanguard would likely be much better choices for you. Just google "<name> Roth IRA" (replacing <name> with each of those three in turn) for how to get started.

Speaking of getting started, see Getting started - Bogleheads.
I don't know how much the management fee advantage to being part of a huge (state employee fund management company). I can't find the fees anywhere.
Lack of transparency on fees is a red flag.
...go out and get my own Roth IRA through a Fidelity or something similar if I am looking for a more managed investing option until I can start doing more on my own and what should I look for with the companies to figure this out on my own?
By the time you figure out what to look for, you'll be able to do this yourself. ;)
These are the funds I am in with the 403b...
Really need to know the fees as a percent of assets to evaluate those. Sorry to say the names don't engender optimism. You might peruse 403bwise.org. It's primarily for school districts' K-12 403(b) plans, but much of the information will apply to other 403(b) plans as well.
Topic Author
71GTO
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Joined: Fri Sep 11, 2020 10:10 am

Re: 403b and/or Roth through employer

Post by 71GTO »

Thank you for the welcome, i'm glad get started with starting this adventure.

Yes, it is a 457b. I'm sorry for the confusion. I am in NJ.
As far as option costs. I am searching around, but I do not know what they are or where to find the info in my account, which ties into your next point/question. From what I can tell there is not much information or options with this program. I cannot pick funds or stocks. I pick 457b or roth IRA and then my level of risk. Low medium or high and the percentage of salary I'd like invested every pay check. The 457b is pre tax. The management program also provides calculator to help you figure out how much you should be investing to meet the Financial goal you set in the time frame you determine. I am going to search what I can or call a rep for them to see where I can find the fees and I will post what I find.
Duckie wrote: Fri Sep 11, 2020 3:55 pm 71GTO, welcome to the forum.
71GTO wrote:I work for a state government and I am in a pension system. They offer deferred compensation plans that are managed by Prudential with automatic payroll deductions,
Are these DCPs also known as a 457b? What state? What are the options/costs? You have an excellent DCP Stable Value Fund so the other options may be very good, too.
So, long story short i'd like to start putting putting more away for retirement, is it better to stick with the employer offered options through Prudential and have it automatic or go out and get my own Roth IRA through a Fidelity or something similar if I am looking for a more managed investing option until I can start doing more on my own and what should I look for with the companies to figure this out on my own?
Do not open a personal IRA through your employer. Open it at a decent brokerage like Fidelity. If you want a managed fund (not recommended) use a target-date index fund. For example (FIHFX) Fidelity Freedom Index 2035 Fund Investor Class (0.12%) is currently 50% US stocks, 33% international stocks, and 17% US bonds/cash.

Personally, I would put all your bond allocation in the 403b (Stable Value & Core Bond), just stocks in your Roth IRA (FZROX for US & FZILX for international) and fill the remainder of the 403b with stock funds.
These are the funds I am in with the 403b

Name Asset Class Holdings
DCP Stable Value Fund Stable Value 4.70%

Core Bond Enhanced Index / PGIM Fund Fixed Income - Core Bond 8.51%

PIMCO All Asset Fund Institutional Class Allocation - Tactical Allocation 8.77%

Large Cap Value / LSV Asset Management Large Cap - Value 16.08%

Polen Capital Large Cap Growth Large Cap - Growth 16.57%

Small Cap Value / TBCAM Fund Small Cap - Value 10.12%

Small Cap Growth II Fund (managed by Wellington) Small Cap - Growth 9.90%

International Blend / Lazard Fund International - Blend 19.27%

Invesco Oppenheimer Developing Markets Fund Class Y International - Emerging Market 6.08%
What are the plan expense ratios for these funds? Are there any other options you could choose? You are duplicating things here.
Topic Author
71GTO
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Joined: Fri Sep 11, 2020 10:10 am

Re: 403b and/or Roth through employer

Post by 71GTO »

Thank you!

I will post the fees as soon as I can find them and read the links you provided.
FiveK wrote: Fri Sep 11, 2020 3:59 pm 71GTO, welcome to the forum.
71GTO wrote: Fri Sep 11, 2020 11:02 am I'm new to investing even with basic mutual fund or managed investing. I work for a state government and I am in a pension system. They offer deferred compensation plans that are managed by Prudential with automatic payroll deductions, a 403b which my contributions would be pretax, I would not be able to withdraw the money until retirement or in an emergency situation I could petition them to withdraw the money.
Unfortunately, insurance companies such as Prudential are often associated with high costs to the employees. You'll need to find the specifics for your plan.
My choice of investing is low, medium or higher risk. They also offer a Roth IRA. A few years ago, I signed up for the 403b medium risk at the minimum contribution just to get something going and having it automatically taken out made sure it would happen. Now I'd like to open a Roth IRA and probably have it in a managed fund of some sort for now (I do not feel comfortable making my own picks yet), I'm not sure if I should do it through work, or on my own...
Run fast and far from having Prudential handle your Roth IRA. Any of Fidelity, Schwab, or Vanguard would likely be much better choices for you. Just google "<name> Roth IRA" (replacing <name> with each of those three in turn) for how to get started.

Speaking of getting started, see Getting started - Bogleheads.
I don't know how much the management fee advantage to being part of a huge (state employee fund management company). I can't find the fees anywhere.
Lack of transparency on fees is a red flag.
...go out and get my own Roth IRA through a Fidelity or something similar if I am looking for a more managed investing option until I can start doing more on my own and what should I look for with the companies to figure this out on my own?
By the time you figure out what to look for, you'll be able to do this yourself. ;)
These are the funds I am in with the 403b...
Really need to know the fees as a percent of assets to evaluate those. Sorry to say the names don't engender optimism. You might peruse 403bwise.org. It's primarily for school districts' K-12 403(b) plans, but much of the information will apply to other 403(b) plans as well.
Topic Author
71GTO
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Joined: Fri Sep 11, 2020 10:10 am

Re: 403b and/or Roth through employer

Post by 71GTO »

Ok, so I found this on info in my account, but not what prudential's fees are.

DCP Stable Value Fund
Gross Expense Ratio* N/A
Net Expense Ratio** N/A
*Gross Expense per $1,000 = N/A
**Net Expense per $1,000 = N/A

Core Bond Enhanced Index / PGIM Fund
Gross Expense Ratio* 0.24%
Net Expense Ratio** 0.24%
*Gross Expense per $1,000 = $2.40
**Net Expense per $1,000 = $2.40

PIMCO All Asset Fund Institutional Class
Gross Expense Ratio* 1.34%
Net Expense Ratio** 1.19%
Expense Waiver Expiration View more information about Expense Waiver Expiration 07/31/2021
*Gross Expense per $1,000 = $13.40
**Net Expense per $1,000 = $11.90

Large Cap Value / LSV Asset Management Large Cap
Gross Expense Ratio* 0.59%
Net Expense Ratio** 0.59%
*Gross Expense per $1,000 = $5.90
**Net Expense per $1,000 = $5.90

Polen Capital Large Cap Growth Large Cap - Growth
Gross Expense Ratio* 0.63%
Net Expense Ratio** 0.63%
*Gross Expense per $1,000 = $6.30
**Net Expense per $1,000 = $6.30

Small Cap Value / TBCAM Fund Small Cap -
Gross Expense Ratio* 0.93%
Net Expense Ratio** 0.93%
*Gross Expense per $1,000 = $9.30
**Net Expense per $1,000 = $9.30

Small Cap Growth II Fund (managed by Wellington)
Gross Expense Ratio* 0.88%
Net Expense Ratio** 0.88%
*Gross Expense per $1,000 = $8.80
**Net Expense per $1,000 = $8.80

International Blend / Lazard Fund International - Blend
Gross Expense Ratio* 0.85%
Net Expense Ratio** 0.85%
*Gross Expense per $1,000 = $8.50
**Net Expense per $1,000 = $8.50

Invesco Oppenheimer Developing Markets Fund Class Y International - Emerging Market
Gross Expense Ratio* 1.00%
Net Expense Ratio** 1.00%
Expense Waiver Expiration View more information about Expense Waiver Expiration N/A
*Gross Expense per $1,000 = $10.00
**Net Expense per $1,000 = $10.00
Last edited by 71GTO on Fri Sep 11, 2020 7:27 pm, edited 1 time in total.
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FiveK
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Re: 403b and/or Roth through employer

Post by FiveK »

You can delete everything about those funds except the "expense ratio"s.
Topic Author
71GTO
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Re: 403b and/or Roth through employer

Post by 71GTO »

Done!
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FiveK
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Re: 403b and/or Roth through employer

Post by FiveK »

71GTO wrote: Fri Sep 11, 2020 7:10 pm Ok, so I found this on info in my account, but not what prudential's fees are.
There may not be any more. While not horrible, those are bad enough. E.g., compare those to The 4 Best Total Market Index Funds.

See Expensive or mediocre choices for a way to decide whether it remains worthwhile for you to participate.

It could also be worthwhile to review all the other choices in the plan to see if there are less expensive choices that fit your desired asset allocation.
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Duckie
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Re: 403b and/or Roth through employer

Post by Duckie »

71GTO wrote:Ok, so I found this info in my account, but not what prudential's fees are.
I found all the funds and their expense ratios here. It depends on which plan you have.

If you have the "New Jersey State Employees Deferred Compensation Plan" the best options are:
  • Vanguard Institutional Index 0.04% -- Large caps, 80% of US stocks
  • DCP Small Cap Equity Fund 0.10% -- Small caps, 14% of US stocks
  • Dodge & Cox International Stock Fund 0.63% -- Developed markets, 75% of international stocks
  • Core Bond Enhanced Index 0.24% -- US bonds
If you have the "New Jersey Alternate Benefit Program" the best options are:
  • Vanguard Institutional Index 0.04% -- Large caps, 80% of US stocks
  • Dodge & Cox International Stock Fund 0.63% -- Developed markets, 75% of international stocks
  • Core Bond Enhanced Index 0.24% -- US bonds
If you have the "New Jersey Defined Contribution Retirement Plan" then the best options are:
  • Vanguard Institutional Index 0.11% -- Large caps, 80% of US stocks
  • Dodge & Cox International Stock Fund 0.63% -- Developed markets, 75% of international stocks
  • Core Bond Enhanced Index 0.24% -- US bonds
Topic Author
71GTO
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Re: 403b and/or Roth through employer

Post by 71GTO »

Thanks guys, the plan I’m talking about is NJ deferred compensation. Looks like I have a lot of reading to do. From some info I found last night I believe I can request or move around to the funds I want, but is it just moving to funds with the lowest fees? I have to work on learning to evaluate performance on my own.
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FiveK
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Re: 403b and/or Roth through employer

Post by FiveK »

71GTO wrote: Sat Sep 12, 2020 7:06 pm Thanks guys, the plan I’m talking about is NJ deferred compensation. Looks like I have a lot of reading to do. From some info I found last night I believe I can request or move around to the funds I want, but is it just moving to funds with the lowest fees?
Add "...that fit my desired asset allocation" after "moving to funds" and you have it.
I have to work on learning to evaluate performance on my own.
Note the SEC comment about Mutual Funds and Past Performance. ;)

Good luck!
Doctor Rhythm
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Re: 403b and/or Roth through employer

Post by Doctor Rhythm »

71GTO wrote: Sat Sep 12, 2020 7:06 pm I have to work on learning to evaluate performance on my own.
As FiveK implies above, I would recommend paying little attention to performance if you plan to invest for the long haul using index funds. Future performance will be what it is...you can't predict it or control it. What you can do is control expenses, diversify, and choose an asset allocation that fits your risk tolerance.
crefwatch
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Re: 403b and/or Roth through employer

Post by crefwatch »

Note that in NJ, 403(b) contributions are not excludable from state income tax, and thus 403(b) payouts have the investment-in-contract (your money) paid out without tax later. Of course the income and appreciation are taxed upon withdrawal. I agree that it's best to have a Roth IRA independent of a job and a fee-charging intermediary.

As long as you have the income to spare, and there are some low-fee products available, it's good to take advantage of the plan. You can roll it over to an IRA after employment ends or it is otherwise available for withdrawals. But note that it has already-state-taxed money in it if you do that.
Topic Author
71GTO
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Re: 403b and/or Roth through employer

Post by 71GTO »

Doctor Rhythm wrote: Sat Sep 12, 2020 8:11 pm
71GTO wrote: Sat Sep 12, 2020 7:06 pm I have to work on learning to evaluate performance on my own.
As FiveK implies above, I would recommend paying little attention to performance if you plan to invest for the long haul using index funds. Future performance will be what it is...you can't predict it or control it. What you can do is control expenses, diversify, and choose an asset allocation that fits your risk tolerance.

My plan would be for the long term. Overall it sounds like I really have some reading up to do. If I were to go with a managed Roth IRA for now, like the Fidelity products I would be able to roll it over into a account I can more actively manage if I got a point I felt comfortable doing that or I could have more than one Roth IRA one I manage and one that is managed? I think it would be some time before I could get to a max contribution. Or possibly a Roth and regular stock account that I could be more flexible with attempting my own investments?
Topic Author
71GTO
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Re: 403b and/or Roth through employer

Post by 71GTO »

crefwatch wrote: Sun Sep 13, 2020 9:31 am Note that in NJ, 403(b) contributions are not excludable from state income tax, and thus 403(b) payouts have the investment-in-contract (your money) paid out without tax later. Of course the income and appreciation are taxed upon withdrawal. I agree that it's best to have a Roth IRA independent of a job and a fee-charging intermediary.

As long as you have the income to spare, and there are some low-fee products available, it's good to take advantage of the plan. You can roll it over to an IRA after employment ends or it is otherwise available for withdrawals. But note that it has already-state-taxed money in it if you do that.
I was mistaken about the account type. It is a 457b and the money I contribute is pretax, but I am not sure if that is NJ and fed. I asked at the time when I opened if I could change it to a roth and they said yes, i would assume I would have to pay taxes on is then? Would that be something to look into could I roll it out of prudential and into my own account somewhere else?
Topic Author
71GTO
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Joined: Fri Sep 11, 2020 10:10 am

Re: 457b and/or Roth through employer

Post by 71GTO »

Ok, so I contacted Prudential, there are no additional management fees, just whatever the fund fees are. I had selected a goal maker plan similar to the Fidelity plan picking a target date and they investing according to their plan for that. I can drop out of that and pick the funds I want that they offer, but I can not take the funds out of the plan until I am no longer a state employee.
crefwatch
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Re: 457b and/or Roth through employer

Post by crefwatch »

Note that "change it to a Roth" is a vague description. Some big public companies offer both a 401(k) and a Roth401(k) for current salary-reduction contributions. Of course, the Roth contributions are taxed before they are put into a Roth 401(k).

It's impossible to say whether the employer reply you heard was about rollovers to a Roth IRA later, or that they are offering a Roth 457, assuming such a plan exists. I'm not qualified to say.

There's a tiny amount of 457 data here:
https://403bwise.org/education/other

Obviously you can't rely on a PDF from a government other than your own employer, but this looked like a meaty document for comparison, and it DOES refer to Roth 475's:
www.nyc.gov/assets/olr/downloads/pdf/de ... mguide.pdf
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ruralavalon
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Re: 403b and/or Roth through employer

Post by ruralavalon »

Welcome to the forum :) .

Do you have any other accounts? About how much do you contribute annually to investing?

If young or just starting, then the most important investing decision you can make is to establish a high rate of contributions. "Savings rate is the most important retirement savings decision, not only because of the math but because of the way it drives your financial mindset and habits. The basic raw stock/bond risk decision comes second. And the finer details--index or active, factors or total market, alts or no alts--are a distant third." Forum discussion on Jonathan Clements article "Show me the Money".


Asset allocation.
What is your age? About how long until expected retirement? Do you have any debt? Do you have any dependents? How would you describe your risk tolerance? You did say that you will be eligible for a government pension.

First decide on a stock/bond mix to use. Consider both risk and return. Graph, "An Efficient Frontier: the power of diversification". Please see:
1) Wiki article Bogleheads® investment philosophy, part 3 "Never bear too much or too little risk";
2) Wiki article, "Asset allocation";
3) Morningstar (8/20/2019), "The Best Diversifiers for Your Equity Portfolio";
4) White Coat Investor (9/23/2016), "In Defense of Bonds"; and
5) Ben Carlson (8/2/2020), "Why Would Anyone Own Bonds Right Now?"

I suggest around 20 - 30% of stocks in international stocks. Vanguard paper (March 2012), "Considerations for investing in non-U.S. equities", available as an archived pdf. Historically, allocating 20% of an equity portfolio to non-U.S. stocks would have captured about 84% of the maximum possible diversification benefit, and allocating 30% of an equity portfolio to non-U.S. stocks would have captured about 99% of the maximum possible diversification benefit (p. 6). The diversification benefit has varied over time. (You can find lots of debate here on international allocation, opinions ranging all the way from 00% to 50% of stocks in international stocks. If you want more viewpoints on international stocks please try the Google search box, upper right, this page).

Morningstar (11/14/2019), "Revisiting the Case for International". "The case for diversifying internationally isn’t as strong as it used to be, especially if you’re looking for significant risk reduction or consistently better returns. From a portfolio perspective, we typically recommend a healthy international weighting--roughly 25% of total assets--for investors with longer time horizons."

Asset allocation is a very personal decision. You must decide on an allocation that is comfortable for you based on your own ability, willingness and need to take risk.




Fund selection.
71GTO wrote: Mon Sep 14, 2020 10:50 am Ok, so I contacted Prudential, there are no additional management fees, just whatever the fund fees are. I had selected a goal maker plan similar to the Fidelity plan picking a target date and they investing according to their plan for that. I can drop out of that and pick the funds I want that they offer, but I can not take the funds out of the plan until I am no longer a state employee.
It's great news that no extra fees are added by Prudential.

71GTO wrote: Sat Sep 12, 2020 7:06 pm Thanks guys, the plan I’m talking about is NJ deferred compensation. Looks like I have a lot of reading to do. From some info I found last night I believe I can request or move around to the funds I want, but is it just moving to funds with the lowest fees? I have to work on learning to evaluate performance on my own.
The New Jersey Deferred Compensation plan offers some good funds with low expense ratios.


In selecting funds strive for a combination of both broad diversification (to reduce risk) and low expense ratios (to increase your net return). To simply and easily achieve those two goals I suggest choosing funds to simulate the very well diversified, low expense ratio "three-fund portfolio". Please see:
1) Wiki article "Three-fund portfolio";
2) Forum discussion, "The Three-Fund Portfolio"; and
3) Taylor Larimore post, "Articles recommending the three-fund portfolio".

In bond funds also consider effective duration and credit quality.

Low expense ratios are critical to long-term investing performance. Seemingly small annual fees can have a large cumulative impact over time. Here is a "Mutual fund fees calculator" you could use to estimate the impact of investing expenses.

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.



In my opinion the funds which Duckie listed are good funds to consider using:
1) Vanguard Institutional Index (S&P 500 index fund, over 80% of U.S. stock market) (VINIX), ER 0.04%;
2) DCP Small Cap Equity Fund (separate account, fact sheet), ER 0.10%;
3) Dodge & Cox International Stock Fund (both developed and emerging markets) (DODFX), ER 0.63%; and
4) PGIM Core Bond Enhanced Index (separate account, fact sheet), ER 0.24%.


Domestic stocks.
For domestic stocks I suggest using a total stock market index fund where available. "In a 401(k) plan with limited choices one might very well opt for an S&P 500 index fund to serve as the domestic stock component of a three-fund portfolio." Wiki article, Three-fund portfolio, "Other considerations".

In my opinion in a plan that lacks a total stock market index fund, a S&P 500 index fund (like Vanguard Institutional Index, VINIX, in your 457 plan) is good enough by itself for a domestic stock allocation. A S&P 500 index fund covers over 80% of the U.S. stock market investing in stocks of selected large-cap and mid-cap U.S. companies. In the 28 years since the creation of the first total stock market index fund the performance of the two types of funds has been almost identical. Portfolio Visualizer, 1993-2020. So it seems that adding a little in mid/small cap stocks trying to mimic the holdings of a total stock market fund has historically made little difference in performance.

See also:
1) Allan Roth, CBS Moneywatch (02/03/2010), "John C. Bogle on the S&P 500 vs. the Total Stock Market"; and
2) Wall Street Physician (01/17/2019), "Should You Invest in the S&P 500 or the Total Stock Market?".

If you want to add the DCP Small Cap Equity Fund, then an 82/18mix of the S&P 500 and small-cap funds may mimic the content of a total stock market index fund. Wiki article, "Approximating total stock market". In my opinion this is not necessary, it is optional if you prefer to do this.



International stocks.
Although actively managed Dodge & Cox International Stock (DODFX) ER 0.63% has an average expense ratio, and is diversified investing in 71 stocks in different economic sectors, in both developed and emerging markets.

Dodge & Cox is the top rated U.S. fund company. Morningstar (9/6/2019), "Be Thankful That You Don't Compete Against Vanguard". "The tale is straightforward. Every Dodge & Cox fund has outgained the average competitor over the past decade, mostly by large amounts." "Vanguard wins the risk-adjusted battle, while Dodge & Cox retains its total-return title." "After reading this column, Morningstar’s Russ Kinnel informed me that Jack Bogle told him that Dodge & Cox was his favorite fund family. 'My God, they’re boring,' said Bogle. You can’t ask for a higher fund-family compliment than that."

Although riskier, the performance of Dodge & Cox International Stock Fund (DODFX) has compared well to a total international stock index fund. Portfolio Visualizer, 2002-2020.



Bonds.
Although actively managed PGIM Core Bond Enhanced Index (separate account, fact sheet), ER 0.24% has a low expense ratio, and is diversified with 1210 bond holdings. It is an intermediate-term (effective duration = 6.04 years) bond fund, with high credit quality (99% investment-grade, BBB or better).



Traditional vs Roth.
As far as option costs. I am searching around, but I do not know what they are or where to find the info in my account, which ties into your next point/question. From what I can tell there is not much information or options with this program. I cannot pick funds or stocks. I pick 457b or roth IRA and then my level of risk.
Do you mean that your employer's 457 plan permits Roth contributions?

About how much do you currently have in traditional tax-deferred accounts? What is your profession or occupation? You did say that you will be eligible for a government pension.


Education.
A quick education for a beginning investor is Dr. Bernstein's free short on-line book, "If You Can". Also take a look at the Boglehead’s wiki, the "getting started" link I give below.

To go beyond the most basic I suggest that you also read one or two books on investing. Wiki article, "Books: recommendations and reviews".When I first stated managing my own investments, I found this tutorial very helpful in learning investing terminology/jargon and some of the investing basics.Morningstar, "Investing Classroom".

If you have any questions just ask.

I hope that this helps.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

crefwatch wrote: Mon Sep 14, 2020 12:02 pm Note that "change it to a Roth" is a vague description. Some big public companies offer both a 401(k) and a Roth401(k) for current salary-reduction contributions. Of course, the Roth contributions are taxed before they are put into a Roth 401(k).

It's impossible to say whether the employer reply you heard was about rollovers to a Roth IRA later, or that they are offering a Roth 457, assuming such a plan exists. I'm not qualified to say.

There's a tiny amount of 457 data here:
https://403bwise.org/education/other

Obviously you can't rely on a PDF from a government other than your own employer, but this looked like a meaty document for comparison, and it DOES refer to Roth 475's:
www.nyc.gov/assets/olr/downloads/pdf/de ... mguide.pdf
I asked them about taking it out of Prudential to another financial institution rolling it over into another retirement account. When I opened the account originally I asked if I could go from the deferred comp to the IRA and I was told I could. Thank you for the links. Talking this out and looking into these things has definitely helped get me going.
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Ruralavalon, thank you, Yes, I am 42 and vested in a public employee pension. I have a little over 5k in the deferred comp account. No doubt I’m behind on the Saving and investing front, but thankfully now I’m in a position to start getting it going. The pension takes 7.5% of salary and I’m putting 1% into deferred comp. I’m almost done with the debt that’s been a drag for years after that just a small car loan and mortgage. The state does offer a Roth IRA and pretax 457b through prudential. It is an option to change the 457b to a Roth or I can have both and contribute to each. I have no dependents, but I am married, my spouse is in a public employee pension as well and contributes a small amount to a 403b.
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Re: 457b and/or Roth through employer

Post by CyclingDuo »

71GTO wrote: Mon Sep 14, 2020 9:02 pm Ruralavalon, thank you, Yes, I am 42 and vested in a public employee pension. I have a little over 5k in the deferred comp account. No doubt I’m behind on the Saving and investing front, but thankfully now I’m in a position to start getting it going. The pension takes 7.5% of salary and I’m putting 1% into deferred comp. I’m almost done with the debt that’s been a drag for years after that just a small car loan and mortgage. The state does offer a Roth IRA and pretax 457b through prudential. It is an option to change the 457b to a Roth or I can have both and contribute to each. I have no dependents, but I am married, my spouse is in a public employee pension as well and contributes a small amount to a 403b.
Do you also pay into Social Security in New Jersey with your public employee pensions?

Either you have a two legged stool of retirement income streams (pension and risk portfolio) or you have what is pictured below and known as the traditional three legged stool of retirement income streams if you are also paying into Social Security.

Image

The "personal savings" leg of your stool includes things like 457b's, 403b's, 401k's, Roth IRA's, Traditional IRA's, taxable accounts, etc... . That is the leg, based on what you have said thus far, that you and your spouse need to build up and contribute to between now and retirement. The pension leg is taken care of already for both of you. If you pay into Social Security, then you'll both have that leg as well. Ideally, having all three legs is what you want as it will fund your retirement.

You also mentioned you've been dealing with debt for years and it is now just about all gone (outside of the mortgage). Finish up paying off the debt and the car loan so that all that remains is the mortgage. That will allow you to redirect what was going to service the other debt to now increasing the risk portfolio/personal savings leg. Use your 457b, spouse's 403b and boost what you are saving in each, and if you could both open up a Roth IRA and contribute each year into that as well, these will improve your household balance sheet and help build for retirement.

CyclingDuo
"Save like a pessimist, invest like an optimist." - Morgan Housel
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celia
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Re: 457b and/or Roth through employer

Post by celia »

71GTO wrote: Mon Sep 14, 2020 8:29 pm I asked them about taking it out of Prudential to another financial institution rolling it over into another retirement account. When I opened the account originally I asked if I could go from the deferred comp to the IRA and I was told I could.
I think the ability to go from deferred comp to an IRA is limited to those who are over 59.5 or have left the employer. Please re-check that YOU can roll over the deferred comp balance NOW. If so, ask where you can find the form to initiate the process.

71GTO wrote: Mon Sep 14, 2020 9:02 pm The state does offer a Roth IRA and pretax 457b through prudential. It is an option to change the 457b to a Roth or I can have both and contribute to each. I have no dependents, but I am married, my spouse is in a public employee pension as well and contributes a small amount to a 403b.
By definition, an IRA is an INDIVIDUAL Retirement Plan, not an employer plan. You have to contribute to an IRA on your own, not through your employer. And you do NOT want Prudential managing it for you. You (and your wife) can do it yourself by opening a Roth IRA account at Vanguard or Fidelity and invest in a Target fund (Vanguard) or Freedom fund (Fidelity). These are funds of funds that decrease their stock holdings as you get closer to retirement while increasing bonds for safety. Pick the fund named with the year that is closest to when you will turn 65.

Alternately, you could just invest in the Boglehead's Three-fund Portfolio and keep it simple. You probably won't be able to invest in all three funds initially if each fund has a minimum purchase price, but over 2 or 3 years, you should be able to be in all three funds.
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Re: 457b and/or Roth through employer

Post by ruralavalon »

Please add the information requested below to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

Please see this for information needed and format: "Asking Portfolio Questions" .

71GTO wrote: Mon Sep 14, 2020 9:02 pm Ruralavalon, thank you, Yes, I am 42 and vested in a public employee pension. I have a little over 5k in the deferred comp account. No doubt I’m behind on the Saving and investing front, but thankfully now I’m in a position to start getting it going. The pension takes 7.5% of salary and I’m putting 1% into deferred comp. I’m almost done with the debt that’s been a drag for years after that just a small car loan and mortgage. The state does offer a Roth IRA and pretax 457b through prudential. It is an option to change the 457b to a Roth or I can have both and contribute to each. I have no dependents, but I am married, my spouse is in a public employee pension as well and contributes a small amount to a 403b.
Some of what you say is confusing or ambiguous. We need some clarification and additional information.

Do you have the "New Jersey State Employees Deferred Compensation Plan"?

How much (in dollars) do you currently contribute annually to your 457 account? (At age 42 the maximum annual employee contribution is $19.5k.)

Does your employer's 457b plan permit Roth contributions? (An IRA, an Individual Retirement Account, is different than an employer plan.)

How much (in dollars) does your spouse currently contribute annually to their 403b account? How old is your spouse?

Does your spouse's employer's 403b plan permit Roth contributions? (An IRA, an Individual Retirement Account, is different than an employer plan.)

What funds does your spouse currently use in in their 403b account. What funds are offered in the 403b plan? Please give fund names, tickers and expense ratios.

Are you eligible for Social Security in addition to your pension (i.e. do you pay Social Security tax).

Is your spouse eligible for Social Security in addition to Social Security (i.e. does your spouse pay Social Security tax)?

How much (in dollars) do you believe that you two might be able to contribute annually to investing (total, all accounts)?

Do you and your spouse have any other retirement/investing accounts in addition to the 457 and 403b?

(Its often better to coordinate investments among all accounts of a married couple.)

What is your tax bracket, both federal and state? What is your tax filing status?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

CyclingDuo wrote: Tue Sep 15, 2020 5:47 am
71GTO wrote: Mon Sep 14, 2020 9:02 pm Ruralavalon, thank you, Yes, I am 42 and vested in a public employee pension. I have a little over 5k in the deferred comp account. No doubt I’m behind on the Saving and investing front, but thankfully now I’m in a position to start getting it going. The pension takes 7.5% of salary and I’m putting 1% into deferred comp. I’m almost done with the debt that’s been a drag for years after that just a small car loan and mortgage. The state does offer a Roth IRA and pretax 457b through prudential. It is an option to change the 457b to a Roth or I can have both and contribute to each. I have no dependents, but I am married, my spouse is in a public employee pension as well and contributes a small amount to a 403b.
Do you also pay into Social Security in New Jersey with your public employee pensions?

Either you have a two legged stool of retirement income streams (pension and risk portfolio) or you have what is pictured below and known as the traditional three legged stool of retirement income streams if you are also paying into Social Security.

Image

The "personal savings" leg of your stool includes things like 457b's, 403b's, 401k's, Roth IRA's, Traditional IRA's, taxable accounts, etc... . That is the leg, based on what you have said thus far, that you and your spouse need to build up and contribute to between now and retirement. The pension leg is taken care of already for both of you. If you pay into Social Security, then you'll both have that leg as well. Ideally, having all three legs is what you want as it will fund your retirement.

You also mentioned you've been dealing with debt for years and it is now just about all gone (outside of the mortgage). Finish up paying off the debt and the car loan so that all that remains is the mortgage. That will allow you to redirect what was going to service the other debt to now increasing the risk portfolio/personal savings leg. Use your 457b, spouse's 403b and boost what you are saving in each, and if you could both open up a Roth IRA and contribute each year into that as well, these will improve your household balance sheet and help build for retirement.

CyclingDuo
Yes, I pay I to social security, you pretty much nailed everything. Just figuring out how to get the third personal Savings leg going in the right direction. Why I initially went for the deferred comp was it would be automatic just to get that end of things going.
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

celia wrote: Tue Sep 15, 2020 6:57 am
71GTO wrote: Mon Sep 14, 2020 8:29 pm I asked them about taking it out of Prudential to another financial institution rolling it over into another retirement account. When I opened the account originally I asked if I could go from the deferred comp to the IRA and I was told I could.
I think the ability to go from deferred comp to an IRA is limited to those who are over 59.5 or have left the employer. Please re-check that YOU can roll over the deferred comp balance NOW. If so, ask where you can find the form to initiate the process.

71GTO wrote: Mon Sep 14, 2020 9:02 pm The state does offer a Roth IRA and pretax 457b through prudential. It is an option to change the 457b to a Roth or I can have both and contribute to each. I have no dependents, but I am married, my spouse is in a public employee pension as well and contributes a small amount to a 403b.
By definition, an IRA is an INDIVIDUAL Retirement Plan, not an employer plan. You have to contribute to an IRA on your own, not through your employer. And you do NOT want Prudential managing it for you. You (and your wife) can do it yourself by opening a Roth IRA account at Vanguard or Fidelity and invest in a Target fund (Vanguard) or Freedom fund (Fidelity). These are funds of funds that decrease their stock holdings as you get closer to retirement while increasing bonds for safety. Pick the fund named with the year that is closest to when you will turn 65.

Alternately, you could just invest in the Boglehead's Three-fund Portfolio and keep it simple. You probably won't be able to invest in all three funds initially if each fund has a minimum purchase price, but over 2 or 3 years, you should be able to be in all three funds.
Celia, I’m a little confused. I believe I was told I could change the 457b to an IRA within prudential. I can check again, but you recommend I should or shouldn’t do that? Do you mean change the 457 to an Ira and then open another one with a different financial institution?
I’ve been leaning towards a one of those target funds for now. I don’t know if this is best but I feel like getting it going with something is better then sitting while I read before I feel confident in picking my own investments, which I could do outside of an IRA.
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Ruralavalon, I think I hit all of your questions the best I can at the moment.
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Re: 457b and/or Roth through employer

Post by ruralavalon »

71GTO wrote: Tue Sep 15, 2020 4:08 pm Ruralavalon, I think I hit all of your questions the best I can at the moment.
I am in a NJ Deffered comp program and in the state pension plan.

Current market value of the Deferred comp is $5200. i am currently contributing $30 biweekly.

NJ Deferred comp. Prudential does offer a Roth IRA

My wife(43)is in a public employee pension plan as well and pays into social security. She contributes $35 by weekly for ten months of the year into a 403b that is managed by a local financial advisor/firm that is brought in by the district. I believe that her 403b plan is a Roth IRA already, but she needs to confirm this with the advisor and with school starting under the current pandemic environment its a little hard to get info now from her... She has $2200 in the account. I wil try to decipher one of her statements to see what she is invested in.

We have no other accounts with Funds. i do have an old Scottrade account, but no stock...

Tax status is filing joint 24% fed and 5.53% NJ.

I can't say with certainly right now exactly how much, maybe $100-200 a month, I can freeze the deferred comp and add that into the number if I go to an outside firm. My original thought which is the same as why I started the deferred comp is to just get something going now and increase funding as I can and I thought a Roth IRA would be best for now.
Asset allocation.
At ages 42 and 43, with pensions and Social Security, I suggest around 20% in bonds or other fixed income. See my earlier post.

I suggest 20-30% of stocks in international stocks. See my earlier post.

That works out to about 20% bonds, 20% international stocks, and 60% domestic stocks. Asset allocation is a very personal decision which must be based on your own ability, willingness and need to take riak



Funds to use.
I suggest continuing traditional tax-deductible contributions to your governmental 457b account. I suggest that both the existing balance and new annual contributions be switched to these three funds:
1) 60%, Vanguard Institutional Index (S&P 500 index fund, over 80% of U.S. stock market) (VINIX), ER 0.04%;
2) 20%, Dodge & Cox International Stock Fund (both developed and emerging markets) (DODFX), ER 0.63%; and
3) 20%, PGIM Core Bond Enhanced Index (separate account, fact sheet), ER 0.24%.

It's still necessary to find out what funds are offered in her employer's 403b plan. Please give fund names, tickers and expense ratios.



Contributions.
As mentioned the most important investing decision you can make is to establish a high rate of contributions.

At 30 per bi-weekly you are only contributing about $780 annually.

At $35 weekly for 10 months your spouse is only contributing about $1,500 annually.

You both need to increase your contributions as much as possible. The annual maximum employer contribution limit is $19.5k each.



Traditional vs Roth.
Even though you both are eligible for both pensions and Social Security I suggest traditional rather than Roth contributions. You are in the 24% federal tax bracket, and have just $7,400 in traditional tax-deferred accounts.

At some point in the gift you might consider Roth contributions. How much will the pension be for each of you, and how much will Social Security be for each of you?

Do find out for sure if Roth contributions are permitted for the employer plans.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Ruralavslon, thank you. Just to clarify, my deferred comp contributions are pretax and I will be taxed when I withdrawal funds. I can also open an the Roth through work and contribute to each.
As far as the pensions we don’t really know what we will end up with. I am vested and my wife is almost vested, so the percentage of salary and time are set, but given that we we have many more years to go and many more contacts that will be negotiated we really don’t know what our final average salaries will be to calculate how much we will get. I guess the same would go for social security.

We will increase contributions as soon as possible. I’ll post my wife’s funds tonight. I’m not sure I’ll be able to easily find out what is available, but I can find out what she has
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Re: 457b and/or Roth through employer

Post by Charon »

71GTO wrote: Tue Sep 15, 2020 3:28 pm I believe I was told I could change the 457b to an IRA within prudential.
Once you retire, you likely can. But not now. Your IRA would be a personal thing entirely separate from work. As others have recommended, go with a low cost company (Vanguard, Fidelity, etc.) for this, and use an index fund. I would recommend a target date fund as a complete, balanced, set-and-forget solution.

Edit: just caught my eye that you're in the 24% federal tax bracket. I would assume then that your income is >~$200k, which would mean that you will not be able to make tax-deductible traditional IRA contributions, and are phasing out or completed phased out of being able to contribute to a Roth IRA. The 457(b) could be a better option in this case, for the tax deferral, or you could do a backdoor Roth.
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Re: 457b and/or Roth through employer

Post by 71GTO »

I’m sorry, good catch. It’s 22% I fixed my original post. I think I looked at the single chart. I can only wish I was making that much, lol.
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Re: 457b and/or Roth through employer

Post by 71GTO »

Ok, my wife's 403b, which I still want to confirm is Roth or some portion is a Roth.
The statement seems to indicate the Three funds not listed as Taxable are a Roth and the other is a regular investment...

47.47% Taxable fixed income Funds
13.46% Invesco OFI International Bond Fund A
13.39% Invesco OFI Global Stratagic Income Fd-A
10.10% Invesco OFI Senior Floating Rate Fund A
8.93% Invesco Govt Money Market Cash Reserve
1.59% Invesco Short Term Bod Fund Class A

24.13% International's/Global Equity Funds
12.29% Invesco OFI International Divrs Fund
6.32% Invesco OFI Intl Small-Mid Company Fd-A
5.52% Invesco OFI International Equity Fund-A

21.47% Domestic Equity Funds
16.41% Invesco American Value Fund Class A
5.06% Invesco Comstock Select Fund Class A

6.93% Alternative Funds
6.93% Invesco Real Estate Fund Class A

The only fees listed are
Invesco America Value Fund Clas A 1.19%
Invesco Govt Money Market Cash Reserve .58%
Invesco OFI International Divrs Fund A 1.24%
Invesco Real Estate Fund Class A 1.23%
Invesco Short Term Bond Fund Class A .65%
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Re: 457b and/or Roth through employer

Post by celia »

71GTO wrote: Tue Sep 15, 2020 3:28 pm I believe I was told I could change the 457b to an IRA within prudential. I can check again, but you recommend I should or shouldn’t do that?
If you can rollover the 457 to an IRA within prudential, then you can roll it over to an IRA at another custodian. I would avoid Prudential as they may talk you into buying a lousy insurance product, especially one where they lock you into many years and then you have to pay big fees to get out early.
Do you mean change the 457 to an Ira and then open another one with a different financial institution?
If you move it away from Prudential, then you can continue to use it for new contributions.
I’ve been leaning towards a one of those target funds for now. I don’t know if this is best but I feel like getting it going with something is better then sitting while I read before I feel confident in picking my own investments, which I could do outside of an IRA.
That's a good option, but I still question being able to rollover the 457, while still working for the same employer.
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Re: 457b and/or Roth through employer

Post by 71GTO »

celia wrote: Tue Sep 15, 2020 6:37 pm
71GTO wrote: Tue Sep 15, 2020 3:28 pm I believe I was told I could change the 457b to an IRA within prudential. I can check again, but you recommend I should or shouldn’t do that?
If you can rollover the 457 to an IRA within prudential, then you can roll it over to an IRA at another custodian. I would avoid Prudential as they may talk you into buying a lousy insurance product, especially one where they lock you into many years and then you have to pay big fees to get out early.
It is possible when I was told that, what they meant was they would allow me to cash out the 457 and then move it to an IRA from Prudential. Thankfully they do not approach you about insurance. That is possibly some agreement with the state to not solicit...
Do you mean change the 457 to an Ira and then open another one with a different financial institution?
If you move it away from Prudential, then you can continue to use it for new contributions.

It seems like the consensus is not to open an IRA with them and I don't think I'll be doing that.
I’ve been leaning towards a one of those target funds for now. I don’t know if this is best but I feel like getting it going with something is better then sitting while I read before I feel confident in picking my own investments, which I could do outside of an IRA.
That's a good option, but I still question being able to rollover the 457, while still working for the same employer.
When I call to ask about how to change the funds I am in with the 457 because I'm sure they won't make that easy I will ask if I can roll it over out of curiosity.
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Re: 457b and/or Roth through employer

Post by ruralavalon »

71GTO wrote: Tue Sep 15, 2020 6:05 pm I’m sorry, good catch. It’s 22% I fixed my original post. I think I looked at the single chart. I can only wish I was making that much, lol.
Here are methods you can use to double-check the estimate of your federal tax bracket. First estimate your "taxable income". Moneychimp, "Tax Calculator". Or if your income etc. is fairly consistent from year to year, then look at your 1040 tax return for last year for your "taxable income". Then use your "taxable income" to estimate your "tax bracket". Moneychimp, "Federal Tax Brackets".


71GTO wrote: Tue Sep 15, 2020 5:12 pm Ruralavslon, thank you. Just to clarify, my deferred comp contributions are pretax and I will be taxed when I withdrawal funds. I can also open an the Roth through work and contribute to each.
As far as the pensions we don’t really know what we will end up with. I am vested and my wife is almost vested, so the percentage of salary and time are set, but given that we we have many more years to go and many more contacts that will be negotiated we really don’t know what our final average salaries will be to calculate how much we will get. I guess the same would go for social security.

We will increase contributions as soon as possible. I’ll post my wife’s funds tonight. I’m not sure I’ll be able to easily find out what is available, but I can find out what she has
Do you mean that you can make Roth contributions to the 457 plan? (Thats different than a Roth IRA, which you set up independent of your employer.) Some employer plans allow Roth contributions, others don't. That why I keep asking this question. To find out try looking at the Summary Plan Description.

If so Roth contributions to the employer plan is a good choice to consider in the future, when you have a former grasp of what the pensions and Social Security might be, and when you have a higher balance in the traditional tax-deferred accounts.

Right now I think it's probably better to continue, and increase, traditional tax-deductible contributions.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Ruralavalon,
I checked everything again. We are in the 22% bracket.
I copied this from Prudentials website as to what the options are for accounts

ROTH NON 457 ROLLOVER
ELECTIVE DEFERRALS
ROTH 457(B)
PRE TAX NON 457 ROLLOVER
ROTH 457 ROLLOVER
PRE TAX 457 ROLLOVER

When I go to the page that I can change the percentage of salary to invest I have these two options, so it would appear I can have both and just designate a percentage to a Roth. I also checked and I can easily cancel following their goal maker auto investment and designate the funds I want. Although, I do want to check to see if that means only going forward or if what I already have invested will change also.

Elective Deferrals
ELECTIVE DEFERRALS
1.00% Change 100.00%
ROTH 457(B) 0.00% Change 100.00%

I did want to ask though, why would a traditional retirement account be better now than a Roth IRA? Shouldn't I maybe put more into a Roth since that would be tax free when I retire?
Last edited by 71GTO on Wed Sep 16, 2020 12:16 pm, edited 1 time in total.
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Re: 457b and/or Roth through employer

Post by retire2022 »

Op

You can only transfer the 457b balance out of the existing custodian only if you are no longer employed.

I would check with HR and your 457b to confirm this understanding.

See IRS publication 590a page 22 for transfer chart.
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Re: 457b and/or Roth through employer

Post by 71GTO »

This is copied from their website regarding withdrawals. The only thing that I kind of don't like is that I need to ask and be approved if I needed to make a withdraw and even if it isn't approved they would freeze contributions for six months.

When you withdraw money from your retirement account you may be faced with current taxation of that money, as well as possible penalty taxes. In addition, withdrawing money before your retirement will likely reduce the amount of money you actually have at retirement.
Your Maximum Available Amount is $0.00. You may not continue with this transaction.
Rollover to Another Account
Go
You can choose to roll money over into another qualified retirement plan, a Traditional Individual Retirement Account (IRA) or a Roth IRA. To better understand tax implications associated with rolling money over, see your tax advisor. Neither Prudential nor its representatives may render tax advice.
You have $0.00 total available.*
You have $0.00 Roth amount available.*
You have $0.00 non-Roth amount available.*
What rollover options do you have? What rollover options do you have? (Opens a modal dialog)
Your Maximum Available Amount is $0.00. You may not continue with this transaction.
Withdraw Cash
Go
Withdraw money for immediate use, but pay taxes now on the taxable amount of the withdrawal.
You have $0.00 total available.*
You have $0.00 Roth amount available.*
You have $0.00 non-Roth amount available.*
What are the tax consequences? What are the tax consequences? (Opens a modal dialog)
* As of 09/15/2020; market fluctuations and pending activity can affect total available.
Account Value:
$5,301.51
Vested Amount:
$5,301.51
Employment Status:
Active-Eligible for Ctbs
If you are no longer actively employed with New Jersey State Employees Deferred Compensation Plan, please contact us at 1-866-657-3327
Rules: Withdrawals
Unforeseeable Emergency Withdrawals: such conditions may include unexpected medical expenses and other events as permitted by your plan. Your deferrals to the Plan will be suspended for a period of six months upon application, regardless of approval.
Purchase of Service Credit: For more information, please contact the Division of Pensions and Benefits at (609) 292-7524.
In-Service Withdrawal: If you have rollover assets in the plan, you may take an in-service withdrawal of these funds. Any rollover assets must be withdrawn before applying for an unforeseeable emergency withdrawal.
Voluntary In-Service Distribution: You can receive a one-time in-service distribution from your account in a lump sum if the total account is less than $5,000 and deferrals have not been made during the prior two years.
Distribution Options:
Leave your funds in your Plan (subject to federal rules on minimum required distributions)
Take a systematic withdrawal
Take a full or partial lump sum distribution
Transfer your balance to an eligible retirement plan or IRA
Purchase an annuity
In the event of death, your account balance is paid (and is income taxable) to your beneficiaries.
If your plan has distribution fees, distributions that include both Roth and Non-Roth money will be processed as 2 separate transactions and will be subject to separate transaction fees. You will see 2 transaction fees after the transaction has processed.
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celia
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Re: 457b and/or Roth through employer

Post by celia »

71GTO wrote: Fri Sep 11, 2020 11:02 am I'm new to investing even with basic mutual fund or managed investing. I work for a state government and I am in a pension system. They offer deferred compensation plans that are managed by Prudential with automatic payroll deductions, a 457b which my contributions would be pretax, I would not be able to withdraw the money until retirement or in an emergency situation I could petition them to withdraw the money.
OP, Originally you wrote that you can't withdraw from the 457 until retirement and now you are saying something different.
71GTO wrote: Tue Sep 15, 2020 3:28 pm I’ve been leaning towards a one of those target funds for now. I don’t know if this is best but I feel like getting it going with something is better then sitting while I read before I feel confident in picking my own investments, which I could do outside of an IRA.
I disagree, in this situation. You have already got yourself into a little mess with the 457 already because you didn't understand what you were doing and that Prudential is an insurance company more than a brokerage. Look at all the small amounts you have your 457 split into. And now it is difficult for you to change anything except by moving the assets to other Prudential products that are likely worse and will probably cost you to make the change.

For now, I suggest you turn off 457 contributions and learn enough to come up with a solid plan.
71GTO wrote: Wed Sep 16, 2020 11:58 am I copied this from Prudentials website as to what the options are for accounts

ROTH NON 457 ROLLOVER
ELECTIVE DEFERRALS
ROTH 457(B)
PRE TAX NON 457 ROLLOVER
ROTH 457 ROLLOVER
PRE TAX 457 ROLLOVER
I assume all these choices can be made only with Prudential, which appears to be doing something "non-standard". ***IF*** you had money in any of these accounts, I wouldn't be surprised if these "non-standard" accounts would be able to be rolled over to another custodian. Does Prudential say that all the ROLLOVER accounts are IRAs? Why don't you call Fidelity or Vanguard and see if they would be able to "pull" money from any of these accounts. Listen for their re-action too because these don't sound typical to me. (This may also be the reason it is difficult for you to understand investing.)

I know that if you posted your portfolio here using these "account types", we would start by asking why something is named "non-457", or "Elective Deferrals". We would suggest starting by rolling the Roth stuff into a Roth IRA and the pre-tax stuff into a Rollover IRA (which is a Traditional IRA that temporarily holds funds from an employer plan until you can roll them into a future employer plan).
71GTO wrote: Wed Sep 16, 2020 12:13 pm This is copied from their website regarding withdrawals. The only thing that I kind of don't like is that I need to ask and be approved if I needed to make a withdraw and even if it isn't approved they would freeze contributions for six months.
...
Account Value:
$5,301.51
Vested Amount:
$5,301.51
Employment Status:
Active-Eligible for Ctbs
...
Voluntary In-Service Distribution: You can receive a one-time in-service distribution from your account in a lump sum if the total account is less than $5,000 and deferrals have not been made during the prior two years.
Distribution Options:
Leave your funds in your Plan (subject to federal rules on minimum required distributions)
Take a systematic withdrawal
Take a full or partial lump sum distribution
Transfer your balance to an eligible retirement plan or IRA
Purchase an annuity
Here's what I would do to get away from the Prudential 457 plan. I would stop contributions for two years, then when the account balance goes below $5,000 during a market downturn, I would quickly roll the money over to a Rollover IRA or convert to a Roth IRA. However, they may drag their feet on this until the balance is above $5,000. You would need to know the procedures to be followed ahead of time for them to be able to release the funds. And I would have the new custodian "pull" the funds and take care of dealing with Prudential.
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FiveK
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Re: 457b and/or Roth through employer

Post by FiveK »

celia wrote: Wed Sep 16, 2020 4:19 pm
71GTO wrote: Fri Sep 11, 2020 11:02 am I'm new to investing even with basic mutual fund or managed investing. I work for a state government and I am in a pension system. They offer deferred compensation plans that are managed by Prudential with automatic payroll deductions, a 457b which my contributions would be pretax, I would not be able to withdraw the money until retirement or in an emergency situation I could petition them to withdraw the money.
OP, Originally you wrote that you can't withdraw from the 457 until retirement and now you are saying something different.
Seems the usual Hardships, Early Withdrawals and Loans language.
71GTO wrote: Tue Sep 15, 2020 3:28 pm I’ve been leaning towards a one of those target funds for now. I don’t know if this is best but I feel like getting it going with something is better then sitting while I read before I feel confident in picking my own investments, which I could do outside of an IRA.
I disagree, in this situation. You have already got yourself into a little mess with the 457 already because you didn't understand what you were doing and that Prudential is an insurance company more than a brokerage. Look at all the small amounts you have your 457 split into. And now it is difficult for you to change anything except by moving the assets to other Prudential products that are likely worse and will probably cost you to make the change.

For now, I suggest you turn off 457 contributions and learn enough to come up with a solid plan.
Seems ruralavalon had decent suggestions for Funds to use.
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ruralavalon
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Re: 457b and/or Roth through employer

Post by ruralavalon »

71GTO wrote: Wed Sep 16, 2020 11:58 am Ruralavalon,
I checked everything again. We are in the 22% bracket.
I copied this from Prudentials website as to what the options are for accounts

ROTH NON 457 ROLLOVER
ELECTIVE DEFERRALS
ROTH 457(B)
PRE TAX NON 457 ROLLOVER
ROTH 457 ROLLOVER
PRE TAX 457 ROLLOVER

When I go to the page that I can change the percentage of salary to invest I have these two options, so it would appear I can have both and just designate a percentage to a Roth. I also checked and I can easily cancel following their goal maker auto investment and designate the funds I want. Although, I do want to check to see if that means only going forward or if what I already have invested will change also.

Elective Deferrals
ELECTIVE DEFERRALS
1.00% Change 100.00%
ROTH 457(B) 0.00% Change 100.00%

I did want to ask though, why would a traditional retirement account be better now than a Roth IRA? Shouldn't I maybe put more into a Roth since that would be tax free when I retire?
Good. It does appear that your employer's 457b plan permits Roth contributions.

In my opinion traditional tax-deductible contributions are probably better for you. For most people traditional deductible 401k contributions will likely be better.

The income tax code is progressive, with a lower tax rate for lower income. Retirement usually means that employment income has ended. Therefore, most people are in a lower tax bracket in retirement and for most people traditional deductible 401k contributions will probably be better.

Because the tax code is progressive, when you withdraw from your 457b in retirement the income is not all taxed at the marginal tax rate specified for your tax bracket. TFB blog post, "The case against Roth 401k". Because the tax code is progressive, "Until you know you can generate from your Traditional 401(k) enough income to fill the lower brackets, it doesn’t make sense to contribute to a Roth 401(k). For people without a traditional defined benefit pension plan, it means the majority of the retirement savings should go to a Traditional 401(k), not Roth."

Your federal tax bracket is 22%, so the tax-deduction is very valuable. You only have $7,400 in traditional tax-deferred accounts. So for now do traditional; tax-deductible contributions. Reassess after you determine how much your pensions and Social Security will be.

For now increase your contributions as much as possible.

Wiki article, "Traditional vs Roth".
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Celia, thank you, I will research further what you recommend, but I did state I can not withdraw from it u til retirement or an emergency. I would need to petition them and get approved then pay any taxes, penalties or fees. I’d guess petitioning them that I want to invest somewhere else might not get approved.

Yes, now it seems like there are better options, like I said at the time the pre tax contributions and automation of it seemed to be a good incentive at the time.

As far as those account options That is not something I saw at the time. The options presented where pretax contributions deferred comp and Roth IRA. Then they manage the funds. From my reading it seems like prudential will gladly let you roll over other accounts to them. I called and asked about rolling funds out to another institution and I was told I could not. Is that true maybe not. I can try to speaking with someone else.
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ruralavalon
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Re: 457b and/or Roth through employer

Post by ruralavalon »

Here's what I would do to get away from the Prudential 457 plan. I would stop contributions for two years, then when the account balance goes below $5,000 during a market downturn, I would quickly roll the money over to a Rollover IRA or convert to a Roth IRA. However, they may drag their feet on this until the balance is above $5,000. You would need to know the procedures to be followed ahead of time for them to be able to release the funds. And I would have the new custodian "pull" the funds and take care of dealing with Prudential.
It's good that your employer's plan permits some in-service distributions, but that alone is not enough, by law you must be age 59.5 or over.

You will not be able to do a rollover an IRA. You are currently age 42. To do a non-hardship in-service distribution without the 10% penalty and income tax liability you must be 59.5 years old.

Investopedia, "In-service withdrawal ". "By law, normal withdrawals from retirement plans can be made as a result of employment change, hardship and documented financial need, or once the employee has reached 59½ years of age." .

Good Financial Cents, Gf¢, In-Service Distributions, rollover while you are a still working. "1. First things first, you HAVE to be 59 1/2. No matter how much you dislike your current plan and you want to withdrawal it all, it’s not an option until then."

As mentioned before in my opinion what you need to do is increase contributions, not stop them.

You are not limited to Prudential insurance products. In my opinion the plan offers some good very useable funds:
1) Vanguard Institutional Index (S&P 500 index fund, over 80% of U.S. stock market) (VINIX), ER 0.04%;
2) Dodge & Cox International Stock Fund (both developed and emerging markets) (DODFX), ER 0.63%; and
3) PGIM Core Bond Enhanced Index, ER 0.24%.
Last edited by ruralavalon on Wed Sep 16, 2020 5:44 pm, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Ruralavalon, Thank you. That makes sense to me interestingly enough, once when I asked an accountant once while doing taxes, he states the opposite. Figuring that taxes will always be going higher.
As
Far as pensions, I could speculate 70k for maybe 60k for my wife as of now. by the time We could collect it could be more if I’m lucky, but with NJ we just hope we get a pension... As far as what social security would be is that something I could guess at now. Some days it sounds like I’d be lucky to get anything....

Thank you again for your detailed advice. I really do appreciate it and although I don’t have all the answers for your questions working through finding them has been informative and motivating.

I would like to thank everyone that has posted with information and advice.
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ruralavalon
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Re: 457b and/or Roth through employer

Post by ruralavalon »

71GTO wrote: Wed Sep 16, 2020 5:44 pm Ruralavalon, Thank you. That makes sense to me interestingly enough, once when I asked an accountant once while doing taxes, he states the opposite. Figuring that taxes will always be going higher.
As
Far as pensions, I could speculate 70k for maybe 60k for my wife as of now. by the time We could collect it could be more if I’m lucky, but with NJ we just hope we get a pension... As far as what social security would be is that something I could guess at now. Some days it sounds like I’d be lucky to get anything....

Thank you again for your detailed advice. I really do appreciate it and although I don’t have all the answers for your questions working through finding them has been informative and motivating.

I would like to thank everyone that has posted with information and advice.
Is that $70k annually for you plus $60k annually for her?

You can get an idea of of Social Security benefits from the Social Security website, plus they mail you an estimate every year after a certain age (I don't know what that age is). Up to 85% of Social Security benefits may be subject to income tax.

Once you have all the numbers then the traditional vs Roth question becomes -- whether the total will put you in the 24% tax bracket or higher once you retire.

With just $7400 currently in tax-deferred accounts, the impact of Required Minimum Distributions (RMDs) on the traditional vs Roth decision is not significant.
Last edited by ruralavalon on Wed Sep 16, 2020 5:57 pm, edited 4 times in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
retire2022
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Re: 457b and/or Roth through employer

Post by retire2022 »

71GTO wrote: Wed Sep 16, 2020 4:58 pm Celia, thank you, I will research further what you recommend, but I did state I can not withdraw from it u til retirement or an emergency. I would need to petition them and get approved then pay any taxes, penalties or fees. I’d guess petitioning them that I want to invest somewhere else might not get approved.

Yes, now it seems like there are better options, like I said at the time the pre tax contributions and automation of it seemed to be a good incentive at the time.

As far as those account options That is not something I saw at the time. The options presented where pretax contributions deferred comp and Roth IRA. Then they manage the funds. From my reading it seems like prudential will gladly let you roll over other accounts to them. I called and asked about rolling funds out to another institution and I was told I could not. Is that true maybe not. I can try to speaking with someone else.
71GTO

You could possibly do a Roth Conversion in service-plan if your custodian offers that option. If they don't I would petition the plan administrator to do so.

If you decide to do a Roth Conversion and if your plan offers it you need to understand the differences of Roth 457b versus Roth IRA, as well as a need to pay the tax on the amount to be converted.

I have not read your entire thread, but having a pension and large pretax 457 account at 72, your Required Minimum Distribution (RMD) may put you in a higher tax bracket at retirement and will impact your Medicare at 65 IRMMA.

Roth 457b have Required Minimum Distribution at 72 if you keep your Roth 457b balance in your account.

IRS Pub 590a on transfer chart as I mentioned before: https://www.irs.gov/pub/irs-pdf/p590a.pdf

Additionally my 457b plan NYSDCP.com offers a self directed plan legally allow owner to divert some of the funds to Charles Schwab

https://www.nysdcp.com/tcm/nysdcp/stati ... ow.pdf?r=1

Perhaps you could petition your plan to do this as well.

good luck retire2022
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71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Ruralavalon, yes, 70k for me and 60k for her. That would be my optimistic guess if we get some good contracts and maybe a promotion in the next 20-25 years...The pensions are I believe 55% of the average of your last three years, I know the will be taking out for health insurance and I’m not sure what else gets deducted from your pension payments.
As of now pensions are also taxable in NJ, so I’d imagine we would have to be like many and move out if state some day.
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ruralavalon
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Re: 457b and/or Roth through employer

Post by ruralavalon »

71GTO wrote: Wed Sep 16, 2020 6:19 pm Ruralavalon, yes, 70k for me and 60k for her. That would be my optimistic guess if we get some good contracts and maybe a promotion in the next 20-25 years...The pensions are I believe 55% of the average of your last three years, I know the will be taking out for health insurance and I’m not sure what else gets deducted from your pension payments.
As of now pensions are also taxable in NJ, so I’d imagine we would have to be like many and move out if state some day.
I hope the optimistic guess on pensions turns out, those would be great amounts for pensions. I can't help you with that, I don't know a thing about New Jersey pensions or about your possible future earnings.

Once you have the estimates for Social Security and are confident about pension numbers you can reassess the traditional vs Roth decision, perhaps with the help of a tax accountant. You can change the type of contributions at any time you wish.

For now (in the 22% federal tax bracket, with just $7,400 in traditional accounts) I still suggest traditional contributions, increased as much as you can.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started
Topic Author
71GTO
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Re: 457b and/or Roth through employer

Post by 71GTO »

Will do, Thank you for all of your help.
retire2022
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Re: 457b and/or Roth through employer

Post by retire2022 »

New Jersey along with several other states Illinois, Kentucky are underfunded pensions.

https://taxfoundation.org/state-public- ... ronavirus/
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