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Contributing to 457b even though likely switching jobs in 2-3 years?

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  • Contributing to 457b even though likely switching jobs in 2-3 years?

    Hello!

    After going through various scenarios in my head about my spouse and I's finances, I'm still stuck on a few questions regarding our upcoming retirement accounts. My wife and I are both going to be new attendings as of mid-August. By using the principles learned on this forum, some well paying moonlighting opportunities, and saving immensely on housing expenses, we have been doing relatively well financially thus far as we finished residency. Grateful to be where we are currently, but always appreciative of additional advice! My questions have been listed towards the end of the post.

    Financial Summary:
    Total Retirement Accounts (Roth IRA x2, 401k x1): $73,000
    Taxable Account: $110,000
    Cash: $70,000 (larger than usual cash holding, as we did not have any paychecks coming in this summer prior to beginning our attending jobs)
    ***Asset allocation in retirement accounts: mostly SP500 and total stock market index funds

    Combined student loan burden: $527,000
    Car loans: None, we have two cars are fully paid for
    Housing costs: None (currently staying in a family owned condo to save money), no upcoming plans to buy a home
    ***All federal loans at 0% interest currently, but soon to be at 6.8% again

    Total Assets: $253,000
    Total Debts: $527,000
    Major Upcoming Expenses: Will plan for first child in ~1-2 years, house in 5-10 years
    Net Worth: -$274,000

    Attending Jobs:
    Hospitalist Position:
    - Base salary is $208,000
    - RVU productive bonus, and quality bonuses are paid out in January 2023, roughly expected to be $75-100k based on multiple conversations with colleagues
    - 401k with 3% match per paycheck, 3% annual contribution
    - Non-governmental 457b option with mostly target date retirement funds, NO SP500 fund, but offers a VSMPX fund that sounds appealing

    SO outpatient pediatric job:
    - Base salary is $220,000
    - 15k sign on bonus paid out in August-Sept
    - Same 401k plan as mine
    - Same 457b plan as mine

    457b details:
    - Non-governmental
    - Decent investment options but no SP500 index fund available; would likely choose VSMPX total stock market fund for myself and SO
    - There is a self directed brokerage option with Schwab, but I don't know much about this
    - Health care system is massive, expanding, and in good financial health
    - Upon separation:
    - Can defer payment until 70.5 (I don't know why this would be beneficial)
    - Lump sum distribution allowed
    - Installment payments allowed, but only UP TO 5 years max
    - Rollovers allowed

    Questions:
    1. Should I contribute to this 457b for my spouse and myself?
    - We do plan to eventually switch jobs, likely in 2-3 years
    - The additional $39,000 we could save pre-tax each year would provide about $14k in tax savings annually.
    - Contributing monthly to the 457b would eventually drop our monthly income by roughly 2k, which means less money towards student loans
    - Current student loan plan was to refinance loans as soon as the interest rate freeze expires, and then aggressively pay about $15k a month
    - Currently leaning towards maxing out the 457b each year for both of us, but I'm nervous about this as we do plan to switch jobs relatively soon

    2. Both of these plans will be available to us starting in mid-August --> if we contribute to this, should we aggressively max out the 457b for 2021?
    - For myself and my spouse to max out both of the 457b's, we'd have to contribute 35% of our paychecks for remainder of 2021, then drop this down to about 8% after January 2022
    - My wife will have a 401k for the first time as well, so she will also be contributing 35% of her paycheck for remainder of 2021 in order to max this out
    - We have enough cash saved up to make any loan payments for these few months and have a sign on bonus coming; but contributing to a 457b would certainly delay loan repayment by some amount

    3. Once we do eventually switch jobs, how should we distribute the funds?
    - If we max out the 457b for 2021, 2022, and 2023 prior to switching jobs, we should have about $117,000 total to distribute
    - I'm guessing the best option would be to roll over to another 457b if possible
    - If a rollover is not possible, would a 5 year payment the best option, or lump sum?


    I think that's all the questions I have - I apologize for the long post but would appreciate any insight!




  • #2
    This is a tough call, as you can't roll a nongovernmental 457b into an IRA and you don't know if your future workplace will have a 457b plan that accepts rollovers. I think it comes down to how comfortable you are with leaving this money in the hands of your former employer for (presumably) at least a few years. Since you're only talking about investing in it for 2-3 years, it's not a huge sum of money at risk, and the fact that it would give you some financial benefits now and you can withdraw the money over a 5 year period would make me inclined to use it. But I'd keep a VERY close eye on the financial health of my ex-employer, and wouldn't leave the money in there for too long.

    Comment


    • #3
      IF you are confident on the financial health status of the system, defering until 70's has the same benefits as a 401k- you will likely be taking money out at 70 at a tax rate lower than you will be in when you are putting the money in, and it will have had decades to grow (Im assuming early 30s for new attendings). The risk is that the health system/hospital goes bankrupt and takes your money with them.
      Is there a match for the 457?

      Comment


      • #4
        very tough call.

        it's really all about the distribution options and you have the option to defer this until retirement. if you do it you should set distribution date many years in future (70 is actually probably good). small risk obviously that system goes bankrupt.

        if i were you i wouldn't go all-in in any direction. put like 10k/year into the 457b and then just park it for retirement. you don't have to max it necessarily. sometimes the best way to handle these tough financial decisions is just to kind of not fully decide.

        if you feel like this is too complicated then you really can't go wrong just making larger payments on your very large student loan debt. i don't think this is quite WCI gospel but w/ loans <$500k i usually just tell residents to max their 401k/403b, do their backdoor roths, and just throw everything else at the debt.

        Comment


        • #5
          Originally posted by artemis View Post
          This is a tough call, as you can't roll a nongovernmental 457b into an IRA and you don't know if your future workplace will have a 457b plan that accepts rollovers. I think it comes down to how comfortable you are with leaving this money in the hands of your former employer for (presumably) at least a few years. Since you're only talking about investing in it for 2-3 years, it's not a huge sum of money at risk, and the fact that it would give you some financial benefits now and you can withdraw the money over a 5 year period would make me inclined to use it. But I'd keep a VERY close eye on the financial health of my ex-employer, and wouldn't leave the money in there for too long.
          I'm leaning towards this same sort of thinking --> I think ideally I'd like to keep this 457 untouched until age 70, but I'd hate to keep up to date on this one particular health care system until then. Best case scenario would certainly be to rollover into another non-governmental 457b, but if this isn't an option then the tax savings will be nullified upon withdrawal.

          Originally posted by billy View Post
          IF you are confident on the financial health status of the system, defering until 70's has the same benefits as a 401k- you will likely be taking money out at 70 at a tax rate lower than you will be in when you are putting the money in, and it will have had decades to grow (Im assuming early 30s for new attendings). The risk is that the health system/hospital goes bankrupt and takes your money with them.
          Is there a match for the 457?
          There is no match for the 457 unfortunately. I think my only hesitancy with deferring until age 70 is that I just don't want to risk any major upheavals to a healthcare system that could always fail - despite how successful it is now. I guess if I withdraw upon leaving this job, then the tax benefits are likely moot, which might be my answer.

          ​​​​​
          Originally posted by MPMD View Post
          very tough call.

          it's really all about the distribution options and you have the option to defer this until retirement. if you do it you should set distribution date many years in future (70 is actually probably good). small risk obviously that system goes bankrupt.

          if i were you i wouldn't go all-in in any direction. put like 10k/year into the 457b and then just park it for retirement. you don't have to max it necessarily. sometimes the best way to handle these tough financial decisions is just to kind of not fully decide.

          if you feel like this is too complicated then you really can't go wrong just making larger payments on your very large student loan debt. i don't think this is quite WCI gospel but w/ loans <$500k i usually just tell residents to max their 401k/403b, do their backdoor roths, and just throw everything else at the debt.
          As of now, I think the idea of just resorting to paying off my loans even more aggressively seems to make the most sense to me - here are the distribution options for the plan listed below:

          o Team members can defer payment until age 70 1/2.
          o Team members may make a one-time request to change the time and/or form of payment elected, as long as such request is submitted to the Plan Administrator
          o Lump-sum payments are allowed: A single lump-sum distribution on the date elected by the team member.
          o Installment payments are allowed: Substantially equal annual payments over no more than five years, beginning on the date elected by the team member.
          o Rollover to a new employer’s non-governmental 457(b) Plan with a Letter of Acceptance.

          It sounds like point #4 could be an interesting way to withdraw funds once we're in a lower tax bracket, but I'd be apprehensive about pushing off distributions too far into the future. Keeping track of a healthcare system's finances once I am no longer working there sounds quite difficult. If I end up contributing to the 457b only to withdraw ~100k in a few years, then the tax savings are essentially nullified. I think I might be talking myself into not contributing to the 457b at all...

          Comment


          • #6
            not what you asked but great job on savings so far and I'm wondering if it's stupid but do you think it'd be a good idea to cash out that taxable account and put it all towards those student loans? That burden is quite high. You're a dual physician HH so you have a big shovel but for a dual-physician HH a HH income of ~$450k is actually pretty low.

            Comment


            • #7
              fwiw i left ~200k (both of us) in a 457b at a very stable old employer and set the distribution dates to 65 for both of us, we are in our late 30s.

              it's not a crazy idea to do this, you just have to understand that small but i guess real risk of loss.

              and obviously you want to spend this money first in retirement so forget what i said earlier about 70, i had a brain far, what i actually did was 65.

              also this employer was a uni, not a big private chain fyi.

              Comment


              • #8
                Originally posted by JBME View Post
                not what you asked but great job on savings so far and I'm wondering if it's stupid but do you think it'd be a good idea to cash out that taxable account and put it all towards those student loans? That burden is quite high. You're a dual physician HH so you have a big shovel but for a dual-physician HH a HH income of ~$450k is actually pretty low.
                Thank you! I definitely have thought a lot about using the taxable account to pay back the student loans, but with the implementation of interest rate freezes we decided to just let it ride and grow over the last year. Once we refinance, we should be able to comfortably pay back ~15k a month, allowing us to pay off the loan in ~36 months. Our plan was also to dump our January 2023 bonuses into the loans (should easily be 75-100k before tax), which should finally give us a positive net worth and pay off the loan in < 3 years.

                We do have a fairly low income for a dual physician income, but we really wanted to live in a lower paying city for a few more years. It's also kind of scary seeing a lot of the pediatrician job offers out there - they're criminally underpaid!

                Comment


                • #9
                  Originally posted by MPMD View Post
                  fwiw i left ~200k (both of us) in a 457b at a very stable old employer and set the distribution dates to 65 for both of us, we are in our late 30s.

                  it's not a crazy idea to do this, you just have to understand that small but i guess real risk of loss.

                  and obviously you want to spend this money first in retirement so forget what i said earlier about 70, i had a brain far, what i actually did was 65.

                  also this employer was a uni, not a big private chain fyi.
                  Thanks for the advice! It sounds like the decision on the 457 could go either way - my organization is a private chain, which does add a bit to my hesitancy on contributing. I think if I knew for sure that my next employer would have a 457b this would be a no brainer, as we'd be able to accumulate a greater sum of money. In about 2.5 years of contributions we could likely funnel about 100-115k into the account, which I suppose could then grow until we enter a lower tax bracket or early (hopefully) retirement.

                  At this point I may just hold off on contributing for 2021 to see how it feels to pay 15k a month towards student loans. After loan payments if we have enough cash flow to contribute further into a 457b I don't see why we shouldn't park money there for decades.

                  Do you have any tips on how to fully assess a private health system's financial ratings? I'm not sure how much information would be available to the public - my perception is certainly that the organization is doing quite well, but I haven't actually found any hard financial data.

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