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457b vs backdoor Roth IRA

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  • 457b vs backdoor Roth IRA

    I fully fund my 401k with employer match. My hospital also offers a 457b which I have been funding since leaving residency in 2015. I have been getting subpar advice from a financial advisor so I am in the process of taking the WCI course and taking control of my own investing. One of the "pieces of advice" my advisor has been giving me is to not worry about the backdoor Roth and to focus on my 401k and 457b as well as a taxable investment account (this was only after I told him multiple times that I was not going to purchase whole life). My question is, if I only have enough to fund my 457b or start a backdoor Roth, which one should I focus on first? (Obviously, I am going to stop funding my taxable account until both of these are fully funded)

     

    Greg

  • #2
    Prioritize the Backdoor Roth.  The pros for a 457 plan is that your contributions are pre-tax so they will reduce your tax bill just like a 401k, and if you take money out of the plan before retirement age, it isn't subject to a 10% penalty like a 401(k) would be.
    The cons to a 457(b) plan is that it will remain with your employer until you withdraw it.  Even after you leave, you can't roll a 457 plan into a IRA like you can with a 401k so it's not transportable unless you roll it to another 457(b) plan.


    457b plans are also subject to the creditors of the institution.  So, if your employer were to ever go bankrupt, your 457b plan could be at risk.

    Comment


    • #3
      Is it a governmental 457b? Rules are very different and much more advantageous for those.

      Comment


      • #4
        I don't believe so but I will have to check. It is run through Transamerica.

        Comment


        • #5
          i have access to all of these accounts as well.

          especially if you are young i think it's nuts for him to tell you to avoid bdRIRA in favor of 457b. if it's gov't then maybe less so but still missing out on the potential to have a massive tax free pile of money in retirement.

          it sounds like you definitely need to fire this person.

          Comment


          • #6
            Is it a governmental 457(b) or a non-governmental 457(b)? That can make a huge difference from a creditor risk perspective.

            Generally it’s a bad idea to invest in taxable and not do the backdoor Roth. Given the choice between $5,500 (or $11K married) tax free for the rest of your life or the same amount subject to taxes every year, which sounds better? If your old “financial advisor” didn’t understand this (and wanted you to buy whole life), you need to fire him. From a cannon.

            You may be in your highest tax years. I would consider the 457, especially if it’s governmental. I also would do the backdoor Roth if you’re saving in a taxable account.

            Comment


            • #7




              I fully fund my 401k with employer match. My hospital also offers a 457b which I have been funding since leaving residency in 2015. I have been getting subpar advice from a financial advisor so I am in the process of taking the WCI course and taking control of my own investing. One of the “pieces of advice” my advisor has been giving me is to not worry about the backdoor Roth and to focus on my 401k and 457b as well as a taxable investment account (this was only after I told him multiple times that I was not going to purchase whole life). My question is, if I only have enough to fund my 457b or start a backdoor Roth, which one should I focus on first? (Obviously, I am going to stop funding my taxable account until both of these are fully funded)

               

              Greg
              Click to expand...


              Thanks for taking the course.

              Depends on the 457(b). If it is a crummy 457(b) (bad investments, high fees or poor distribution options) then it's a no-brainer, do the backdoor Roth IRA.

              If it is a good 457(b) and you're in your peak earnings years where tax-deferred usually makes more sense than tax-free, then it is a much harder question. Can you collect some more info on the 457(b)? (Go get the plan document.)
              Helping those who wear the white coat get a fair shake on Wall Street since 2011

              Comment


              • #8
                are you looking for what investment options are available to me and their fees? Or something else?

                Comment


                • #9
































































































































































































































































































































































































































































                  12/31/2017 Annualized Total Returns 12/31/2017 Expense Ratio
                  Fund Name Incept.
                  Date
                  Unit
                  Value
                  1 Mo.
                  %
                  3 Mos.
                  %
                  YTD
                  %
                  1 Yr.
                  %
                  3 Yrs.
                  %
                  5 Yrs.
                  %
                  10 Yrs.
                  %
                  Incept
                  %
                  Gross
                  %
                  Net*
                  %
                  Short Bonds/Stable/MMkt
                  Transamerica Government Money Market R4 09/00 1.0000 0.01 0.09 0.09 0.09 0.03 0.02 0.25 1.36 0.57 0.50
                  Interm./Long-Term Bonds
                  Transamerica Intermediate Bond R4 09/00 10.2100 0.38 0.46 4.04 4.04 2.47 2.41 4.37 4.91 0.66 0.65
                  Large-Cap Stocks
                  Dodge & Cox Stock 01/65 203.6100 2.43 5.75 18.33 18.33 11.08 16.29 7.71 11.25 0.52 0.52
                  Transamerica Stock Index R4 09/00 11.2600 1.14 6.60 21.48 21.48 11.09 15.46 8.23 5.22 0.36 0.30
                  Harbor Capital Appreciation Inv 12/87 66.9900 0.60 7.11 36.08 36.08 14.04 17.38 9.75 10.28 1.07 1.02
                  Small/Mid-Cap Stocks
                  Fidelity Extended Market Index Premium 11/97 62.0500 0.52 4.86 18.18 18.18 9.88 14.58 9.28 9.94 0.07 0.07
                  Columbia Small Cap Value II Instl 05/02 17.9800 -0.14 3.38 10.94 10.94 10.02 14.32 8.58 9.85 1.07 1.02
                  Meridian Small Cap Growth A 12/13 15.7700 2.37 3.53 22.60 22.60 10.99 N/A N/A 14.25 1.49 1.49
                  International Stocks
                  American Funds EuroPacific Gr R5 04/84 56.0900 1.11 4.23 31.09 31.09 9.61 9.16 3.90 8.34 0.54 0.54
                  Vanguard FTSE All-Wld ex-US Idx Admiral 09/11 33.9600 1.94 4.71 27.22 27.22 8.32 6.90 2.13 8.65 0.11 0.11
                  Multi-Asset/Other
                  T. Rowe Price Retirement Balanced Adv 09/02 15.4000 0.63 2.10 10.08 10.08 5.02 5.51 4.69 5.50 0.81 0.81
                  T. Rowe Price Retirement 2010 Adv 09/02 18.2000 0.70 2.30 11.36 11.36 5.61 6.62 4.98 6.39 0.82 0.82
                  T. Rowe Price Retirement 2020 Adv 09/02 22.3900 0.65 3.09 15.49 15.49 7.14 8.82 5.78 7.34 0.88 0.88
                  T. Rowe Price Retirement 2030 Adv 09/02 25.7100 0.61 3.74 19.15 19.15 8.47 10.63 6.36 8.07 0.94 0.94
                  T. Rowe Price Retirement 2040 Adv 09/02 27.0000 0.54 4.21 21.68 21.68 9.29 11.67 6.79 8.36 0.99 0.99
                  T. Rowe Price Retirement 2050 Adv 12/06 15.3900 0.57 4.33 22.09 22.09 9.46 11.77 6.82 6.80 0.99 0.99

                  Comment


                  • #10
                    Holy fees Batman!  Who from Transamerica picked these investment choices?

                    With these options, I'd probably go with a 50:30:20 mix of Dodge & Cox Stock, Fidelity Extended Market, and Vanguard All World ex-US.  Normally I'm not a fan of actively managed funds, especially for something as liquid and widely traded as large cap US stocks, but I'll admit that I like Dodge & Cox and DFA.

                    Comment


                    • #11
                      Okay, could be worse. What are the distribution options?
                      Helping those who wear the white coat get a fair shake on Wall Street since 2011

                      Comment


                      • #12
                        I will have to check on the distribution options. I am pretty sure it isn’t a government 457b. So bd Roth is probably the better option?

                        Comment


                        • #13




                          I will have to check on the distribution options. I am pretty sure it isn’t a government 457b. So bd Roth is probably the better option?
                          Click to expand...


                          if you don't work for the gov't it isn't a gov't 457b.

                          Comment


                          • #14
                            Is a 457b offered by the University of California a “government” 457b?

                            Comment


                            • #15
                              Any advisor who says to prioritize a taxable account over a backdoor Roth is giving bad advice. The whole point of the backdoor Roth is to take dollars that would otherwise be invested in a taxable account and give them tax-free growth for life.

                              The 457(b) investment options aren't great by any stretch, but could be worse. I'd fill the 457(b) only after doing a backdoor Roth, and maybe not at all.

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