I posed this question to my advisor, and was wondering if any of you had strong feelings one way or another. I am currently maxing out my employee 403(b) and my Roth IRA and Spousal IRA. I asked if I should be maxing out my tax-deferred 457 plan prior to maxing out my Roth's, or it is ok to max out the Roth's first.
He stated that if I am maxing out my 403(b), then it is a good idea to max out the Roth's first before the 457. He stated that the reasons for this are multiple. One, that there would be a mix of tax-deferred money as well as money that I've already payed taxes on when I retire. He said there is no required distribution to the Roth's, which is an advantage. When I asked him if it wouldn't be better to put money into a tax-deferred account like the 457 now because I am a high income earning professional and in a high tax bracket now, and will be in a lower tax bracket when that 457 money needs to be taxed in retirement? He said that no, in fact I am in the lowest tax bracket now than I will be for the rest of my life, even in retirement. He said that because of inflation, the taxes and brackets will be bound to go up (which makes sense). The part that doesn't quite make enough sense is that he stated that the 12K-ish that I am making currently on my income and the 6K (for example) that I would be using in retirement would still be taxed at the same tax bracket level (such as the 25% bracket). I find this hard to believe, but didn't know enough about that to respond adequately. Any thoughts or help? 457? Or Roth?
Thanks!
Stephen T.
He stated that if I am maxing out my 403(b), then it is a good idea to max out the Roth's first before the 457. He stated that the reasons for this are multiple. One, that there would be a mix of tax-deferred money as well as money that I've already payed taxes on when I retire. He said there is no required distribution to the Roth's, which is an advantage. When I asked him if it wouldn't be better to put money into a tax-deferred account like the 457 now because I am a high income earning professional and in a high tax bracket now, and will be in a lower tax bracket when that 457 money needs to be taxed in retirement? He said that no, in fact I am in the lowest tax bracket now than I will be for the rest of my life, even in retirement. He said that because of inflation, the taxes and brackets will be bound to go up (which makes sense). The part that doesn't quite make enough sense is that he stated that the 12K-ish that I am making currently on my income and the 6K (for example) that I would be using in retirement would still be taxed at the same tax bracket level (such as the 25% bracket). I find this hard to believe, but didn't know enough about that to respond adequately. Any thoughts or help? 457? Or Roth?
Thanks!
Stephen T.
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