Finance specialists

[LarryMorris]

Again, I don't know enough about these. Any Financial Planners or CPA's out there?

[callsnap]

Originally Posted by Bo$ton

I understand the answer to the housing question, but wouldn't maxing out a roth ira be more benefical than investing in the 457b... Now, if I still have expendable income after the roth then I would invest in the 457b (not matched). Agree????? Disagree???

That depends on what stage you're at in life. Examine your gross income now and your projected income in years to come. Are you just starting out and expect that $60k salary (25% tax rate) to increase to $155k (33% tax rate)?

1. With your 457b, you escape your tax rate now, and pay taxes on withdrawals later. The 457b is a better deal than the Roth if you expect your taxable income to be lower in retirement.
Thus, you're better off with the compounding interest and tax deferred earnings of a 457b. Plus, you're reducing your taxable income by amounts contributed. It's an even better deal if you max out your contributions. At the least, contribute up to the company match (if there is one).

2. The Roth is the exact opposite. You invest taxable income now, but have a clean slate for tax free withdrawals in retirement. There is a tax benefit to maxing out an IRA. Just realize that there are income limits that may preclude you from the tax break.

If you're uncertain on your current vs. future income, hedge your tax exposure by doing both. Contribute to the 457b up to company match. Then contribute to the Roth IRA. If you don't receive a match; do the reverse (IRA then 457b). Either way, any mutual funds (i.e. index funds) or other investment vehicles should come last. These have no real tax advantage in comparison - as you contribute taxable income up front and long term gains are taxed up to 15%.

Bottom line, you want to make sure all of your retirement money isn't taxed the same way. Thus, you'll have some flexibility in retirement on how to manage your income and the amount of tax you'll pay. This is important, as you'll be on a fixed income.

There are no wrong answers here. You are doing well to be saving a significant portion of your income. You should already have a basic brokerage or money market account with 3 month's living expenses before contributing to 457b, IRA, or other investments. My advice focuses on long term saving. If you expect to perform early withdrawals or need the cash sooner the answer would change. Best of luck!

[LarryMorris]

Well said Callsnap!!

[Bo$ton]

Well said Callsnap.. Thank you very much...
The company's 457b doesn't match at all so my plan is: (and I do anticipate a healthly retirement due the fact that I am lucky enough to have a pension, 80% upon completion of 33 yrs. I will be 55): max out a roth, use any other tax shelters (maybe even an annuity or something like that my advisor might recommend), and then put any other monies in the 457b. The only reason I seem to be shying away from the 457 is because it is a variable annuity where the service is poor and returns seem low. Anyway, I am sure I will have more questions in the future.
Thanks to all that contributed.