Non-governmental 457

[GIMD]

I have access to a non-governmental 457 plan at work. Should I contribute to this plan instead of putting money into my taxable brokerage? Thanks.
Some info:
I am 20+ years from retirement and anticpate staying at this job for 5-10 years.
My workplace has a A2 Moody rating and is doing well financially
The 457 plan has a decent mix of target retirement funds and low cost Vanguard index funds.
I anticipate having a higher salary if I leave this job.
I will be forced to take distributions spread over 10 years upon job termination unless I can roll it into another 457 plan.

[Lithium]

The argument in favor of investing in it is that you get tax deferred accrual for 5-10 years. That’s worth something. It sounds like the plan checks the 3 main boxes (investment options, decent withdrawal, financial stability).

You could make quite a few arguments against it. It sounds like you’re going to have neutral at best tax arbitrage in ten years (may depend on state tax rates). I have never heard of anyone rolling money into another NG 457 plan (even if you go to a job with another plan, I don’t think they all take rollovers). With a taxable account you can get a step up in basis and use it for other investments that aren’t available in the NG 457b (real estate).

[GIMD]

The argument in favor of investing in it is that you get tax deferred accrual for 5-10 years. That’s worth something. It sounds like the plan checks the 3 main boxes (investment options, decent withdrawal, financial stability).

You could make quite a few arguments against it. It sounds like you’re going to have neutral at best tax arbitrage in ten years(may depend on state tax rates)..

Can you explain the tax rules when I take distributions? I think I am currently at the lowest income point in my career. I can get tax deferred investments now in the 457 but if I"m not planning to stay with the institution until retirement, I am concerned that if my salary increases with the new future job and places me in a higher tax bracket, I would have to pay back more taxes that I deferred in addition to capital gains when I take distributions.

[Bmac]

I think it depends on your overall mix of tax-exempt (Roth), tax-deferred (traditional IRA/401k/403b) and taxable investments. If you currently have mostly the first two and little of the third I would go with taxable. If in addition to maxing out the first two you are investing an equal or greater amount into taxable annually, then consider the 457.

[vtpaca]

I am in the same boat as you. I am employed and have a 403b that I max out and a non-govt 457 option. I don’t doubt the fiscal health of my employer but I do not think I will stay at this employer until retirement. For that reason I just put more in my taxable brokerage account (after BD Roth and HSA of course). And yes if your tax bracket does increase then you could pay more in taxes. Unless you’re convinced that you will retire at this job I don’t think it’s worth the headache.

[Lithium]

Can you explain the tax rules when I take distributions? I think I am currently at the lowest income point in my career. I can get tax deferred investments now in the 457 but if I"m not planning to stay with the institution until retirement, I am concerned that if my salary increases with the new future job and places me in a higher tax bracket, I would have to pay back more taxes that I deferred in addition to capital gains when I take distributions.

I don’t think you’re missing anything. If you work less than ten years at this job, by spreading it out over ten years you may be able to withdraw <$20,500 a year. But if you are in a higher tax bracket in ten years than you are now then you may come out behind.

on the other hand if you move to a tax free state or marry a stay at home spouse, the calculus could change despite your income going up. It always depends on the specifics of your situation.

[Brains428]

I think I'm gonna cap mine around 150-200k and use it as money to fill a gap if I have to be an associate for a couple years elsewhere, or decide to take a sabbatical for whatever reason. Big thing is to see how good or bad your hospital system is doing, as well as what the distribution options are. You can look up hospital financials on propublica, as well as credit ratings on moody's

[GIMD]

Thanks for all of your replies. Forum participants often recommend maxing out the tax deferred accounts so I just want to make sure that I am not missing out when not contributing to the NG 457 plan. I think I am going to stick with the brokerage account for now since I like the flexibility of investment choices and simplicity of tax of the brokerage account. I have already maxed out all the other tax deferred opotions (403b, BD Roth, HSA). I like my workplace but I don't see us retiring here for geographic reasons and my income can only go up from here.

[billy]

just make sure you arent missing any match- that may change the math. But otherwise, yeah go taxable

[ImpalerMD]

I max out my 401k with matching and my non-governmental 457b. Check out the distribution options of the 457b and realize that you may need to withdraw it if you leave or if the organization tanks (haven’t heard of this happening - ever - from a single doc). It’s a nice way to get some tax-advantaged money into your retirement account! I love it and think it’s a great option. I max it out every year.