non-governmental 457 for next few years?

[Urojet]

I'm a new attending with access to a non-governmental 457 and have run out of other tax-advantaged space (403b for me, 401k for wife, backdoor RIRA x2, no kids yet and not interested in early start on 529). I'm not confident in the long term financial health of my institution over a 30-40 year time horizon, but it seems the risk of it going bankrupt within the next few years is dramatically lower. I don't expect to be at this job for more than a few years.

Reading the plan documents for the first time, I see that after termination I'd have the options of 1) a lump sum distribution, 2) transfer to another non-governmental 457, or 3) electing distributions over 2-10 years at some point in the future before age 120 (hah).

Option 3 isn't appealing, but 1 and 2 seem pretty good. If I happen to move to a financially healthier institution with a plan that allows transfers into their 457 - great, I'll lock in these tax savings. If I don't, I'll take the distribution taxed at my marginal rate, which it would have been anyway had I skipped the 457 and planned to invest in taxable. Is the only downside of this idea that the growth on that principle that would have otherwise been taxed as LTCG, would instead be taxed as ordinary income?

Am curious if others have considered this route.

[JBME]

I don't like these options. I'd suggest skipping the 457 and going to taxable. Do either you or your wife have access to the megabackdoor Roth IRA?

[GIMD]

If you don't expect to be at this job for more than a few years, skip the 457b. With taxable, you can pick and chose whatever ETFs/equities you want. With 457b, you are limited to only a few options in the plan. Not to mention forced distribution at a potentially bad market time. Not worth it.

[Hoopoe]

Also be aware of fees. My wife just found out she has been paying over $600 in fees on her 457 per year amounting to about 0.6% last year. That eats into gains and likely exceeds the tax drag on dividends if held in the taxable account.

[Fitz]

Agree with above. Also, may be better off taking income now at marginal rates than in a few years when rates are scheduled to be higher.

[Urojet]

No mega backdoor Roth option and the fees are reasonable as far as I can tell. Taxable it probably is.

Maybe I'll just keep this idea on the back burner until I actually have another job offer signed with a more financially stable institution that accepts transfers into their 457. As long as I can change elections in my current employer's 457 any time, as seems to be the case, I could at least maximize the contributions for the last few months on my way out the door?

It feels like I'm nit picking, but my combined marginal rate of 41% * ~23k = $9500 in tax saved that year by doing this, right?

[JBME]

But you don’t save on taxes if you take a lump sum distribution at the end when you leave

[adventure]

But you don’t save on taxes if you take a lump sum distribution at the end when you leave

I think though... you would "Save" on them after job1 ends IF you roll into job2's non-gov 457b, right? (you'd just kick that tax payment down the road, but at least you don't have it between job1 and job2.

(lots of other things could me mentioned, etc), but is that what you were thinking? if so, then Yeah, you save paying the $9500 in taxes for a while, at least.

[Brains428]

I'm basically going view it as my own severance package/fund potential gap in associate vs partner income and fund it to that level. So, somewhere in the 150k-200k level and stop there.

[spiritrider]

You can only rollover a non-governmental 457b to another non-governmental 457b that accepts such a rollovers.

While a larger majority of 401k, 403b and governmental 457b plans accept rollovers. A smaller minority of non-governmental 457b plans accept rollovers.

Consider that option 2 may very well be less than likely when the time to rollover actually comes.

[Urojet]

But you don’t save on taxes if you take a lump sum distribution at the end when you leave

That's why I was qualifying that job2 would have to be with a more financially stable employer. I'd contribute the last $22500 (or whatever it is at that point) of my job1 salary to job1's 457, transfer into job2's 457 some months later, then keep it there until I retire along with new 457 contributions.

You can only rollover a non-governmental 457b to another non-governmental 457b that accepts such a rollovers.

While a larger majority of 401k, 403b and governmental 457b plans accept rollovers. A smaller minority of non-governmental 457b plans accept rollovers.

Consider that option 2 may very well be less than likely when the time to rollover actually comes.

I think this is the rub; I'm describing a pretty unique set of jobs/circumstances. Though still a reasonable way for people in my situation to save ~$10k in taxes as they switch employers, as long as everything aligns as I described. Thanks everyone.

[bovie]

I’d for sure skip the 457 and just direct funds to taxable.

[Tim]

I'm basically going view it as my own severance package/fund potential gap in associate vs partner income and fund it to that level. So, somewhere in the 150k-200k level and stop there.

This is a reasonable plan. As long as you are aware of the tax impact of the lump sum.

[JBME]

That's why I was qualifying that job2 would have to be with a more financially stable employer. I'd contribute the last $22500 (or whatever it is at that point) of my job1 salary to job1's 457, transfer into job2's 457 some months later, then keep it there until I retire along with new 457 contributions.



I think this is the rub; I'm describing a pretty unique set of jobs/circumstances. Though still a reasonable way for people in my situation to save ~$10k in taxes as they switch employers, as long as everything aligns as I described. Thanks everyone.

what you are saying imo falls within a reasonable idea. Personally I wouldn't do it b/c of the real risk of not getting a job with a rollover option and/or also not being stable enough to make me feel confident enough to contribute. It sounds like you are willing to take the risk and I do think you understand this all and after evaluating everything you are willing to risk it and it's reasonable.