NonGovt 457B or Taxable

[BaseballDad1618]

Looking at projections this year, DW and I will be phased out of Roth IRA contributions due to income limits. I am considered a Highly Comp Employee so I can only contribute about 7% to 401k. Our firm allows me to contribute to a 457b plan but it’s non governmental and if one were to leave the firm prior to 65 the plan does not allow for a rollover- it must be taken out within 5 years and will be taxed as income. We will be completing a backdoor Roth shortly but wanting to get some opinions on Tax exempt vs taxable after that. We are in our early 30s so I do think if we FIRE in 10-15 years our tax brackets may be lower even with the required 457b payouts.

My wife is running a sole prop so there are probably some SEP/solo401k options but I don’t anticipate her income to be very much until our young kids are in school full time. (

 

[pjm-7]

The thing to remember about 457b private plans is the funds are assets of the company. If the company goes bankrupt it goes with it.

Since you have young children you may want to consider funding 529 savings plans for their future educations. There is no federal tax deduction but your state may allow a deduction for the contribution.

 

[Backpacker]

When the money comes out, it will be via a W-2. Depending on other income at that time you could invest it back into IRA and take a deduction. Or be able to put into a Roth IRA, if income levels are below cutoff. I retired last July at age 55, so deferred my 457b until 2020 so income is now lower and can manage tax impact. Won't your plan let you defer payout? Mine would allow deferal until 70.5. The risk as stated above is default of previous employer the $ is an asset of the company.