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457 (non governmental) vs. ???

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  • 457 (non governmental) vs. ???

    Unfortunately I need to decide today whether to participate in my clinic's 457 plan for 2017 and have more than 2 pay periods to contribute. I've had nothing going into retirement over the past few months since I hit $18k on my 403b without realizing it wouldn't go further. I plan to put $5.5k into a backdoor Roth, but need to put away more retirement money. Our clinic's nongovernmental 457 is through Principal, and the target date retirement funds have fees of 0.99%. I think the risk of the clinic going bankrupt is pretty low, and I have no plans to leave. Distributions are up to 10 years on retirement, and lump sum for anything else. Big picture, my overall retirement savings goal is to work until my mid-60s and then maintain my lifestyle. I'm 45 and have to gain ground on retirement as I got a late start. My earnings each year are in the $130s and we live in an expensive area. Depending on deductions, we'll likely be in the 25-28% tax bracket for 2017. Any reason, or potential reason, I shouldn't go ahead and put about 10k in over the next two months?

  • #2
    A 457b plans is only as good as the company that backs it.  Mine is backed by a huge university with billions in endowment so I feel pretty comfortable. With all of the changes in health care, including huge financial stresses on many health care organizations, a 457b might lead me to feel concerned about possible loss of principal.  How can I reasonably predict the financial health of my employer 25 years down the road?

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    • #3
      You've researched it thoroughly.   Clinics don't go bankrupt;  they dissolve, or get bought out.  The alternative is an ordinary taxable account.

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      • #4
        What does your non-gov 457b say about when and how you can withdraw money? Mine prohibits any withdrawal until I separate from the company or turn 59 1/2. I decided the risk of loss was too great and don’t use the 457b. You can believe anything you want about the chances of your clinic going bankrupt and you becoming an unsecured creditor, but the reality is medical services continue to undergo enormous upheaval. No one can even tell you what the insurance market is going to look like next year, much less a decade or quarter century from now.

        There are other arguments against your 457b. First and foremost are the lousy investments it offers. 0.99% expense ratio is about 6 times the cost of what you’ll pay with Vanguard for a comparable fund. Over 20 years, the compounded expense ratio alone will cost you 15% of your terminal worth. Imagine having $850,000 instead of $1,000,000. The other argument against a non-gov 457b in your case is your low tax bracket. You’re not getting enough of an advantage off the bat to make the additional risk of forfeiture worthwhile. If you were in the 40%+ tax bracket including state you could make the argument. At 28%, plus the loss to expense ratios, I can’t see this making sense.

        I don’t touch my non-gov 457b. I just don’t need the risk in my life. Taxable investment can be very tax-efficient these days.

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        • #5
          I use mine. Same funds and low ERs as my 403b. Very large health system. Favorable distribution options.

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