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Subject:  Re: Deferred Comp Date:  8/24/1999  10:12 AM
Author:  TMFPixy Number:  13397 of 100466

Greetings, Pookiefool, and welcome. You asked:

<<Would a deferred comp program be a good tool for early retirement? I've read debates on the other boards weighing the pros and cons of a 457b vs a Roth
IRA. I have both but have put more money in the deferred comp program instead of the Roth. (my goal is to have the ability to max out both). However, I've heard some Fools suggest that a deferred comp is a poor option regardless due to the fees and limited choices.
My job only offers a pension plan and the optional deferred comp. I jumped into the plan due to the tax benefit- I am single, no property ownership, or anything else I can think of to really save on taxes and the fact that the money would be available should I lose or leave my job.>>

The deferred comp plan gives you an immediate tax break on contributions, but when you leave that job the money cannot be transferred to an IRA. It will be paid to you and fully taxed at ordinary income tax rates at that time. Given the high-cost, poor investment choices offered in many such plans and in the absence of matching employer contributions, I would strongly consider the use of a Roth IRA first and then the deferred comp plan. However, before you make the choice you need to analyze all alternatives on a tax-equivalent basis. Sometimes a taxable account will result in far better results. For an idea of how to do that analysis, see Step 4 of my 13 Steps to Foolish Retirement Planning at

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