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What to do with 457b plan

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  • What to do with 457b plan

    I'm currently about a year out of residency, just got a solo 401K set up at Fidelity and planning to max it out at 61K every year. I also do backdoor roth every year.
    My residency was a county hospital and had a 457B plan that I contributed to over the 4 years, currently has about 75K in it in relatively low expense ratio funds, was wondering what's the best option for this money?
    I've heard it might not be a bad idea to leave it as is since I can withdraw early without penalty. Or should I just transfer it over to my Fidelity for lower expense ratio funds?

    Thank you for your inputs!

  • #2
    Not enough details.
    Are you self employed with no employees?
    (do you qualify for a solo 401k).
    Is it a government 457?
    Are the contributions pretax?
    What are the record keeping fees of the 457b?
    The devil is in the details.

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    • #3
      Yes I have an S-Corp, no employees.

      The 457 is by the County, the contributions were pretax, the fees for the 457 funds have low expense ratios but not as low as my Fidelity funds. To be clear I no longer contribute to the 457 since I no longer work for the county.

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      • #4
        do you have a need for the money now? What is your 2022 expected marginal tax (fed + state)? What are your distribution options, and are you sure you haven't already selected a distribution option?

        Would be helpful to know this but it looks like a governmental 457 so the two best options are probably (leave it until you need the money) or roll it over to a Roth IRA and pay the taxes.

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        • #5
          No I don't need the money now, my expected marginal tax is the highest bracket for fed and state, so probably around 50% put together.
          I'm not too clear about the distribution option.
          What's the advantage of rolling it over to Roth IRA vs into my solo 401K?

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          • #6
            okay I would not roll it over to a Roth IRA in your situation. You need to get more clear about your distribution options. As this is a governmental 457 plan, the money isn't yours until it's distributed to you but the government is unlikely to collapse. If you agree, I'd keep the money right where you have it now and plan to take it for living expenses during early retirement/prior to age 59.5 years. Don't roll it into a solo 401k b/c then the money is locked away (there are other options to get it out before 59.5 years but they are extra steps) until 59.5 years, whereas money in a 457 plan is eligible to you per the distribution options and provided you no longer work at that place...in other words, there's no age limit to use 457 money

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            • #7
              Originally posted by Alex2022 View Post
              No I don't need the money now, my expected marginal tax is the highest bracket for fed and state, so probably around 50% put together.
              I'm not too clear about the distribution option.
              What's the advantage of rolling it over to Roth IRA vs into my solo 401K?
              This is key. This sounds like a g 457b plan. You have options for rolling over. However, the distribution options are defined by the plan. They will be pretty well set in stone on which election you take. Not much flexibility and a one time election. Typically a rollover, 5 or 10 year, or at retirement age. The 457b flexibility has to be selected, and the window closes. I would not do the Roth at your tax rate unless you had a plan to use the funds.

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