Anyone ever really lost their NG 457?

[Raddoc123]

PatriCinq wrote:

I’m just starting out – 4 years into practice.  I have not used 457b yet because I was working on school loans. Now that the loans are over, I’m really conflicted on this.  I can invest 19K in 457b or take out 13K to my taxable.  I have no other tax-protected spaces beyond 403b and BD-Roth (W2 earner).  So I gamble that the company is still here in 30 years? It seems very stable and it is a large national brand.  They still have a pension plan! But we all know it only takes a few years of fancy-type mismanagement to screw the pooch.

What to do?

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I would use it.  13k versus 19k tax deferred. At 6%, the 457b grows to 1.5 mil after 30 yrs and taxable about 1 mil (not counting taxes on dividends which makes difference greater).  You’ll have taxes on both when you withdraw.

It’s extremely rare for docs to lose 457b accounts, especially for nationally known systems.  Your more likely to switch jobs before the 30 yrs is up, in which case you may have to cash out, which I don’t consider a big deal.

[bj296]

My employer sold to a large PE group. They offer a deferred compensation plan with attractive investment and distribution options, but would that be any more or less risky than a large hospital system? I don't want to miss out on the benefits but I have no idea how to evaluate the longevity or stability in this type of environment.

[Good Life]

Interesting question. I have been thinking about this too. I'm joining a large organization (non-profit) with Aa1 bond rating, and I'm debating about using their 457.  The reason I'm debating despite the excellent bond rating and apparent stability is a big part of my retirement will be in their pension (insured under PBGC) they provide. If the organization went under, I'd hate to lose some of the pension money and the 457 money.

[jz]

NG-457s are best used at the end of one's career when you can best assess the financial status of the shop.  Until then put extra's into taxable, 529s, and pay off the mortgage.

 

@bj296,

My employer sold to a large PE group.

Blackstone?  The scope and breadth of their holdings are impressive, but I too, lack skills to predict their longevity.

[bj296]

edit- duplicate comment

[Craigy]

Tim wrote:

 

Keep in mind that preferential payments in bankruptcy put both you and the hospital at risk. By the time you become aware of it, it may be too late. Don’t let the tax tail be the deciding factor in your risk assessment. Good luck.

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This.

I have seen a few people (here and maybe on the facebook group) suggest that hospital bankruptcy is somehow an avoidable risk by just keeping tabs on the financials.

1) Seriously, who is taking time to read hospital financial reports on any regular basis.  Plus the effort to hunt this down in the first place.

2) Most docs wouldn't know what they're looking at, even if they did.

3) Even if you think you're sophisticated and diligent enough, the SHTF real quick.  Billion-dollar write downs, charges, adjustments can and do happen overnight.  Sure your typical hospital system has $8,952,542,346.12 of receivables but they will never collect 50% of that in a good year.

4) Even if you've got a spiritual mind-meld connection with the comptroller and you can cash out before the meltdown, your sweet lump-sum distribution could easily be clawed back in bankruptcy proceedings.

[Lordosis]

I am surprised with how many people do not use their 457 plans.  It is quite the large reward to pass up.  Not only are there significant upfront tax savings there is also the tax protected growth.  I get it if you have awful distribution options and a lump sum will kill all those tax savings.  But if you can take it over a 5-10 year period it should come out at a lower effective rate then the marginal rate it goes in at.  The 6K a year in tax savings invested at 6% for 30 years comes out to 500K.  That is a very real amount.

Not to mention that it is easy money to access in early retirement.

[bj296]

No, a brand new company formed to manage several specialty groups... they bought out a large number of private practices including my employer. They are PE backed by more than one investor, I think.

[artemis]

snowcanyon wrote:

I don’t get the nongovernmental 457. There’s pretty much nowhere to put it when you leave your job, so what’s the point? The IRS might even get a bigger chunk than they would have if you had just put it in taxable. For me, not worth it.

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If your institution has a reasonable withdrawal option (as mine does) and doesn't require a lump-sum distribution, the point is years of tax-free growth.  I plan to use my 457b to fund my retirement years before reaching age 70 1/2, allowing me to delay receiving Social Security.  Then the 403b RMDs kick in.  My taxable account and my Roth IRA are my aces in the hole, the funds I plan to spend last should I live long enough to need them.

[Larry Ragman]

ENT Doc wrote:

Larry, I believe the 457f money is still on the employer’s books and is not protected from creditors.

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I reviewed my plan document and stand corrected. While the employer has no claim on the money once it is placed in the 457f, the funds do remain subject to creditors.

[wonka31]

Lordosis wrote:

I am surprised with how many people do not use their 457 plans.  It is quite the large reward to pass up.  Not only are there significant upfront tax savings there is also the tax protected growth.  I get it if you have awful distribution options and a lump sum will kill all those tax savings.  But if you can take it over a 5-10 year period it should come out at a lower effective rate then the marginal rate it goes in at.  The 6K a year in tax savings invested at 6% for 30 years comes out to 500K.  That is a very real amount.

Not to mention that it is easy money to access in early retirement.

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Yes and no. The issue is that there are a lot of moving parts in medicine, including mergers, buyouts, etc. What you are investing into now may look very different in the future. Furthermore, one employer for life is more of an exception than a rule right now. Thus, event if you have a decent distribution schedule, you may have to distribute it into high income years.

As has been discussed in the past, these are not no brainers like your 401k/403b. I understand the positives and negatives and each person has to (with little inside knowledge or ability to predict the future) make a decision based upon stability, possible mergers and possible future career changes. I personally wouldn't blast anyone for contributing or for not contributing, I can understand both sides of it.

[White.Beard.Doc]

My personal opinion....

There are wrenching changes coming in the future for our US healthcare system.  No one has a very good idea at this moment how all of it will play out.  While mergers and acquisitions are more likely for most institutions than bankruptcy (mergers don't jeopardize your 457b), predicting the state of affairs one or more decades down the road is very highly speculative.

The 457b is not your money until you receive it.  While I took the risk to enroll in the 457b plan with a university employer that has been around for many hundreds of years and has a multi-billion dollar endowment, the structure of this particular type of deferred compensation plan did give me pause.  Personally, I no longer participate in a 457b, I just pay the large income tax bill annually, while continuing to max out the other tax deferred options.  I also expect that as a long term supersaver, my taxes in retirement are just as likely to be equally high or higher than current income tax rates.

[Lordosis]

You make some good points. I am funding mine early career because I do not know what my long term plans are. If I do not use the space now it will be lost. I am not sure if I will want to retire early. I hope to be employed to the same organization for my whole career but I understand that is not as common as it once was. I think 10-15 years from now I will have a better idea of what I want my career to look like and I can make a better choice. I can always stop funding it if I decide early retirement is not for me. But I cannot go back and fund it.
It is hard though because most of the risk we talk of in investing is shallow risk. But loss of a 457 is very real. It is hard to weigh.

[ENT Doc]

Larry Ragman wrote:

ENT Doc wrote:

Larry, I believe the 457f money is still on the employer’s books and is not protected from creditors.

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I reviewed my plan document and stand corrected. While the employer has no claim on the money once it is placed in the 457f, the funds do remain subject to creditors.

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Curious how the 457 could be on the table to be wiped out in the event of a buy-out/merger where the institution being bought hasn't filed for bankruptcy.  Thought someone posted on this earlier.  This would be my bigger fear - not bankruptcy.

[wonka31]

Lordosis-I think you illustrate some points on exactly why I chose to stop using mine. Although I am in a large, stable organization, I’m not entirely sure what my future will hold. Whitebeard made some points, which is something I think about frequently. Mergers and acquisitions have been on a year in healthcare and I’m thinking that doesn’t slow down.

Lastly, I do wonder what our future tax bracket structure looks like. Although I always (and still kind of) feel that raising taxes is career suicide for politicians, I’m finding that is a less common narrative. It’s only hurts their voters if those specific voters have their taxes increased. The narrative of ‘tax the wealthy, tax the high earners’ is quite strong. Although they are currently talking about ultra high earners (which I am not), I do wonder if the ‘high earner’ threshold is lowered.

I typically don’t play the boogie man or the ‘what if’ game, however money is going to have to come from somewhere for two major crises in this country: healthcare and college cost/student loan debt.