457 Roth or traditional + Brokerage

[rollergrrl]

Why I think the traditional 457 is a better option. Please let me know what you think? Am I looking at this right.

Let’s say you are going to max out your 457 and are currently in 22% tax bracket. Right now the maximum contribution amount is $19500

Option 1 : Roth 457
Max out would cost: $23,790 to invest $19500

Option 2 Traditional 457
Max out would cost: $19500 to invest $19500
BUT: you also invest $4290 (the cost of the Roth in option 1) into a brokerage account

After 20 years of investing both 457 accounts would equal the same. Let’s say we averaged a 10% return. Your total would be $1,233,974

Brokerage Account 10% return = $271,094

You start withdrawing 6%

Option 1 Roth: $74,038.44

Option 2 Traditional: $57,750 after taxes
Brokerage: $13,826 after taxes
Total: $71,576


Option 1 is $2462 more but it adds more risk and not worth it. Also the more years you invest the traditional + brokerage actually ends up providing more income.

the traditional 457 accounts allows withdrawals before 59 1/2 without Penalty when you leave your job.

The Roth 457 you have to be 59 1/2 to withdraw funds otherwise you have a Penalty


Do you agree Traditional 457 is better?

[yhoomajor]

I think you may get different answers from different folks on this forum.

I personally prefer traditional/regular 401/457 contribution because it offsets the income at highest marginal tax bracket as of today.

A lot of this also depends on individual's current income tax bracket and potential future tax bracket. Many folks here think tax rates will be higher in future. I think rates won't change much now that Government has figured out that they can keep printing money to finance the yearly budget.

Another factor (inferred from the pension poll on this site), lot of folks here seem to have pensions. So any additional Taxable withdrawals in future, while also drawing their pensions, would move them into higher marginal tax rate.

So in a nutshell, it mostly depends on your individual situation (imho). Standard answer, that roth 401K/457 are better than regular one. is not right option for everyone.

[rollergrrl]

Quote:

Originally Posted by yhoomajor Many folks here think tax rates will be higher in future. I think rates won't change much now that Government has figured out that they can keep printing money to finance the yearly budget.

I can’t see the taxes going up either. Historically income taxes has always gone down for the majority. I can see people with pensions thinking they should do a Roth 457 or Roth 401, but now a days it’s extremely hard to find a job with a pension and a pension that isn’t constantly getting lowered/ changed. Also, the average person doesn’t stay at the same job for 25+ years like the past. It seems the traditional route gives you more control with the out come. Basically removing the golden handcuffs.