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Author: belhaven100 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75616  
Subject: Retirement Contributions to 457 Plan Date: 6/8/2007 12:22 PM
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I have the oppertunity to contribute to (catch up) a 457 plan for the next three years. I am 49 years and I can't retire yet, age 50 is the earliest. I have worked with the County for 30 yrs. I now have savings that can augment my expenses. This will allow me to reduce my taxable income (contributions are not taxed). I can start this Agust for 2007 that will be for 5 months and put away 72% of my wages. For the next two years I can put away about 30% per year.
Most of my savings is from equity from real estate. Does it make any sense to use money (equity) that has not been taxed to augment expenses for the above?
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Author: BruceCM Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57828 of 75616
Subject: Re: Retirement Contributions to 457 Plan Date: 6/8/2007 3:05 PM
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Assuming you are speaking of your principal residence, probably not, for a couple of reasons.

1. I've never seen a 457 plan I'd recommend, with the exception of the Oregon Income plan for State Employees. Most 457 plans are administered by insurance companies, that usually carry multiple annual expenses and fees and often restrict post retirement withdrawals. Now, this is not universal, and there may be well managed, low expense Govt 457 plans out there. But it doesn't make much sense to diligently fund a tax deferred plan that will consume most of your future earnings and tax-deferral benefits in expenses and restrictions.

2. Home equity is a locked-up asset that can only be released when you downsize or die. You can certainly borrow against it, but this can be costly and produces a liability that must be repaid, thus is a net expense. The effect of this would be to further reduce the net earnings of your 457 plan contributions.

Assunming you are fully funding your TIRA/Roth IRA for you and your spouse, and assuming you have no other options for pre-tax contributions through your employer(s), you might consider using the discipline you are alluding to and fund a taxable account of tax efficient ETF's. This way, you have full control, minimal expenses, tax deferral on growth and lower cpaital gains tax rates upon future withdrawal. The trade-off is that this amount will not be protected from creditors, but this would be the risk you'd need to be willing to take.

BruceM

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Author: belhaven100 Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57837 of 75616
Subject: Re: Retirement Contributions to 457 Plan Date: 6/9/2007 7:14 PM
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2. Home equity is a locked-up asset that can only be released when you downsize or die. You can certainly borrow against it, but this can be costly and produces a liability that must be repaid, thus is a net expense. The effect of this would be to further reduce the net earnings of your 457 plan contributions.

Assunming you are fully funding your TIRA/Roth IRA for you and your spouse, and assuming you have no other options for pre-tax contributions through your employer(s), you might consider using the discipline you are alluding to and fund a taxable account of tax efficient ETF's. This way, you have full control, minimal expenses, tax deferral on growth and lower cpaital gains tax rates upon future withdrawal. The trade-off is that this amount will not be protected from creditors, but this would be the risk you'd need to be willing to take.

My thhought is to use the 457 catch up to amass capital to roll over into a self directed roth IRA. From what I understand I will be able to adjust withdrawls a few times a year.

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Author: Hawkwin Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57848 of 75616
Subject: Re: Retirement Contributions to 457 Plan Date: 6/11/2007 9:21 AM
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1. I've never seen a 457 plan I'd recommend,

That being said, why would you recommend a person AVOID a 457 and instead do a taxable account? You can save about $20,000 tax deferred in a 457 (and in some cases, they can do a 403B on top of that). You can only save $5000 in a traditional IRA - and correct me if I am wrong but if they are covered by an employer sponsored plan (the 457 might qualify, I don't know), then they likely can make NO deductable contribution to an IRA.

Sure, max the Roth if possible but would'nt the tax savings of the 457 well offset the extra 1% in fees they may be getting?

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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57851 of 75616
Subject: Re: Retirement Contributions to 457 Plan Date: 6/11/2007 6:54 PM
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Sure, max the Roth if possible but would'nt the tax savings of the 457 well offset the extra 1% in fees they may be getting?

What tax savings exactly?

If you invest in a taxable account buy-and-hold, the only taxes you'll pay are on dividends and realized capital gains (typically very little), which are paid at reduced rates. Then when the investment is eventually sold the gains are also taxed at reduced rates. The only way a higher-fee account would win is if the account threw off tons of interest, coupons, or non-preferred dividends.

The Retire Early Homepage has a good spreadsheet to calculate where exactly is the breakeven between a high-fee, tax-deferred account and a regular brokerage account.

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Author: IndecisiveFool Big funky green star, 20000 posts Top Favorite Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 57852 of 75616
Subject: Re: Retirement Contributions to 457 Plan Date: 6/11/2007 7:26 PM
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If you invest in a taxable account buy-and-hold, the only taxes you'll pay are on dividends and realized capital gains (typically very little), which are paid at reduced rates. Then when the investment is eventually sold the gains are also taxed at reduced rates. The only way a higher-fee account would win is if the account threw off tons of interest, coupons, or non-preferred dividends.

You forgot that you'll pay income taxes initially. You'll need to compare that to the income tax you'll pay on the withdrawals from the 457 later.

IF

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