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457 NG contribute or not

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  • 457 NG contribute or not

    Hello All, first time poster. We are deciding whether to use my spouse's non government 457b plan or not. The health system spouse works for is AA rated large multistate system, so at least in near term seems financially sound. For 2021, we are looking at around 750K gross income between both of us. I don't have 457b plan available so can only defer 19.5K in traditional 401K. Spouse has both 401 and 457 plans available. We are trying to maximize our tax deferred contributions. We will do backdoor Roth as well. Does it make sense to use a non-governmental 457 plan in this situation.

  • #2
    What are the distribution options on separation?
    What are the funds available and fees?

    I’d lean towards yes, given your income, but without the answers to the above questions it’s impossible to give a definitive response.

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    • #3
      Thanks MaxPower, the plan is run by empower retirement, and I can't find anything on distribution options at the page. Will need to contact benefits and find a clear answer on distribution. Total stock/bond and target date Vanguard funds are available.

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      • #4
        the funds are good funds it sounds like (with an expense ratio of .20 or lower) but yes, the distribution options upon separation are critical. Ideally you can spread out the distributions over a 5-15+ year period. Worst case scenario is you have to take an entire lump sum distribution. Also, how old are you/approx how many years until you'd need these funds?

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        • #5
          Does your spouse plan on working there for a long time?

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          • #6
            37% current marginal rate? Then that points to doing it. You would pay at the same marginal rate when you exit.
            No change in marginal rate would mean there is only a free deferral.
            Assumption, marginal tax rates don't change.

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            • #7
              I'd do it.

              By far the major factor is how confident you are that the company won't go bankrupt.

              If that risk is small, then I'd do it. No matter how bad the distribution options are, you benefit from the tax-deferral and tax-free growth. Same with investment options. They would have to be truly horrible for that to be the deciding factor. Most plans have a few, at the very least, that are fine.

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              • #8
                Ask you benefits advisor for the plan documents - the distribution options should be spelled out there. If your wife is early in her career, you don’t want to have to take lump sum or full distribution over a short time as the only options if she leaves the job after her initial contract.

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                • #9
                  Thanks for the advice above. The distribution options are either lump sum or 5 annual payments or rollover to another 457(b)-NG. The date for distribution to begin either lump sum or annual payments can be specified once within 120 days of separation of employment. Considering our marginal rate of 37% and state tax on top, it looks appealing to contribute to it. I am 43 and spouse is 41. We are late in the game, between us we have 550K in tax deferred retirement accounts. Wife intends to keep working here for as long as possible barring unforeseen circumstances. So, the only risk is bankruptcy of the employer.
                  Last edited by Barbreek; 04-07-2021, 03:10 PM.

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                  • #10
                    Given what you've said about your ages, the plan details, and your planned career paths, I'd certainly recommend using the NG-457b.

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                    • #11
                      I would use it. If you're worried about putting too much money in it, you can cap the contributions at any point (might I suggest the cost of a 6 month-1 year sabbatical, if needed).

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                      • #12
                        Pulled the trigger. It’s only 19.5K a year for now. I like the suggestion of thinking about it as saving towards a 1-year sabbatical.

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