Questions about non-governmental 457b

[AR]

FIREshrink wrote:

By the way, the word substantial is not my word. It’s the word required by the IRS to permit nonqualified money to be tax deferred, and is right there in the plan literature for a non gov 457b.

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If that's what you meant by it, it's kind of out of context.  What the IRS considers substantial is irrelevant to your decision making process.  It is only relevant to the extent that it allows the plan to exist.  If it didn't meet the IRS threshhold, there would be no plan for you to even contemplate.

Once the plan exists, the only context in which substantial is important is whether the risk of loss is substantial relative to the compensation of the risk.

In any case, we can fix this communication problem quite easily.  When you were researching your organization's plan, what did *you* estimate the risk of loss to be in your specific case?  That's a lot more useful metric than a vague term like "substantial" which has a wide range of interpretations.

[billy]

I have a similar 457 available to me that allows up to 85% of salary deferred, with a payout either on termination or over 2-10 years after termination. I havent contributed anything yet.  My new plan is to wait until I'm 10 years away from retirement, and then stock it with as much as I think I will need to bridge the gap between retirement (hopefully early retirement) and when I start tapping my retirement accounts.  I think this will minimize the risk of a huge tax bill if I leave way before retirement, and of potential loss due to national company going bankrupt.

[AR]

billy wrote:

I have a similar 457 available to me that allows up to 85% of salary deferred, with a payout either on termination or over 2-10 years after termination. I havent contributed anything yet.  My new plan is to wait until I’m 10 years away from retirement, and then stock it with as much as I think I will need to bridge the gap between retirement (hopefully early retirement) and when I start tapping my retirement accounts.  I think this will minimize the risk of a huge tax bill if I leave way before retirement, and of potential loss due to national company going bankrupt.

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Wow 85%?.  That's insane.  My own non-governmental 457 allows only and extremely small percentage, so in my case, it pretty much doesn't matter what I do.  If I could choose any amount upto 85% that would be a tougher problem.  I'm not sure what the optimal percentage would be, I know it would be more than can I put in now, but exactly how much is tough to say off the top of my head.  I'd probably have to spend a few days thinking about it and running some numbers.

[Seabass]

Doesn’t waitin until 10 years out sorta defeat the purpose. The benefit is tax deferred growth. The longer it’s in the better the return. Or am I missing something ?

[Seabass]

Also. 85% seems odd. My understanding is the limits are just like 403b, 18,500 per year at this point set forth by the fed.

Maybe the perctage of 85% is a cap for part timers?

[JBME]

Yes, what AR and Billy are saying makes no sense to me. I'm quite certain an employer cannot cap your own contributions to your 457 plan. The limit of what you can contribute is $18,500 OR 85% of your salary. If you're making only 22k per year then sure, contribute 85% to your 457 plan. But most people even outside of this forum make more than that, and so they don't put in 85% because that'll put them over what they are legally limited to on their contribution

[billy]

Attempting not to give away which company I work for, but technically I'm allowed deferred comp in a SERP, not a 457b but I consider it very similar (same risk/benefit in my mind, unqualified), which explains why I can put up to 85% deferred comp without the 18500 limit.  If I am wrong, someone please correct me.  My reasoning for not doing it yet is in case I end up switching jobs prior to retirement/FIRE time.  I'm assuming if I switched jobs in the next few years it would be for better pay somewhere, and then over the next 2-10 years I'd be adding to that with the deferred payment from the SERP, which will be taxed at my marginal tax rate so it will lose all the benefit of putting the money in. But if I wait until my last 10 working years, while I give up on some growth, I'd still be lowering my last 10 years taxes while then getting the money (plus whatever growth) back at a lower tax bracket.  Using that money I will hopefully also limit the amount of money I'd have to take out of my qualified retirement plans for a little longer than if I havent used the SERP.  Sorry for the confusion about the 457b.

[AR]

JBME wrote:

Yes, what AR and Billy are saying makes no sense to me. I’m quite certain an employer cannot cap your own contributions to your 457 plan. The limit of what you can contribute is $18,500 OR 85% of your salary. If you’re making only 22k per year then sure, contribute 85% to your 457 plan. But most people even outside of this forum make more than that, and so they don’t put in 85% because that’ll put them over what they are legally limited to on their contribution

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To clarify, mine is capped at 18.5K.  As a percentage of my income it is no where near 85%.  That's what I meant.  Sorry for the confusion.

[PhysicianOnFIRE]

I've been using mine. The tax deferral at 33% (now 32%) plus 9.85% state income tax is well worth the very small risk that my hospital system goes belly up and I can't collect. And I've worked at a place that went belly up (as an independent contractor).