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Subject:  Re: 457 deferred comp plans Date:  2/23/1998  2:32 PM
Author:  TMFPixy Number:  1932 of 88796

Greetings, ContraryFool, and welcome.

<<My wife and I both contribute to deferred comp plans where the money goes to a selection of mutual funds which seem to perform pretty well. Through these plans, we can allocate up to $8000 per year apiece. We do not currently have IRAs. Would it be best to contribute up to the max to the 457 plans at the expense of opening IRAs and not being able to invest directly in stocks for awhile? Or would a more middle-ground position be preferable? I understand that generally it's recommended to max out retirement plans. But in our case, that would be $16000 which is a considerable portion of our AGI, leaving little room for any other saving/investing. It seems like to prudent approach is to max these out while learning more about the market, then later, as income increases, get into stocks more. Any comments? Thanks!>>

Until you learn more, IMHO just stay your course for now. Understand, though, that a 457 plan is not a true retirement plan. Instead, it's a deferred compensation plan. That means when you finally retire, you MUST take the money. It may not be rolled over to an IRA to continue tax deferral. At best, you'll probably only be able to take it in 15 annual installments, and each will be taxed on receipt. Given the nature of your plan, I would be sorely tempted to use $2K each to open a Roth IRA, and then after that was funded go back to the 457 plan. Just a thought FWIW.


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