401K or IRA

[Yellow mellow]

So my current employer offers both 457 and 401k but there are no match. I chose to max out my 457 pre-tax. Now, I would like to contribute more but wasn't sure if I should put it towards my 401 k or a traditional IRA. I wouldn't be able to contribute much each month since I'm also paying a huge portion of my salary towards student loans. Any thoughts?

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[deleted480308]

Back door Roth

 

[sazerac]

If your 401k has lower fees that what you can get for the same fund in your IRA, I would fund the 401k. Unfortunately many 401k's have higher fees than what is available on the consumer market.

The usual employee path is to fund employee accounts (like 401k) to the match because that is free money, then personal traditional IRAs, then fund the employee account again. Since you have no match, go work on your IRA next.

If you think your taxes will be higher in retirement, convert most or all of your IRA to a Roth IRA each year. There is no income limit to perform this maneuver. I found it a pain in the butt to open and close a traditional IRA every year, so now I convert all but $100 into a Roth, leaving my traditional IRA open for another fund/convert cycle next year.

 

[ThoracicGuy]

So my current employer offers both 457 and 401k but there are no match. I chose to max out my 457 pre-tax. Now, I would like to contribute more but wasn't sure if I should put it towards my 401 k or a traditional IRA. I wouldn't be able to contribute much each month since I'm also paying a huge portion of my salary towards student loans. Any thoughts?

If you have the money, why not do both? Make sure the 457 is a governmental program rather than a nongovernmental one. That matters as far as the security of the money should your employer go broke.

Look at the funds available to you in each and determine the lowest cost funds that fit your asset allocation between all of your accounts.

As for the IRA, you likely will make too much to contribute directly, but your have the back door Roth as an option.

 

[Stroganoff]

So my current employer offers both 457 and 401k but there are no match. I chose to max out my 457 pre-tax.

Interesting. I've never run into a 457 plan that was more appealing than a 401(k) and thus a higher priority. Was that the case for you?

 

[Plastikos]

Agree with Stroganoff and Thoracic. Really need to review the differences between 457 and 401k and why you are giving anything to the 457 before maxing out every other option.

Also I would put as much towards pretax deductions as allowed and then take whats leftover towards your loans, this will be the most beneficial mix of transactions efficiency wise.

 

[deleted307836]

Why wouldn't one prioritize a governmental 457 over other pretax options? If one is debating between a 457(b) and a 403(b), wouldn't the 457 win out due to the lack of any early withdrawal penalty once separated from service (and assuming the same fees and fund options for both)?

 

[Yellow mellow]

Why wouldn't one prioritize a governmental 457 over other pretax options? If one is debating between a 457(b) and a 403(b), wouldn't the 457 win out due to the lack of any early withdrawal penalty once separated from service (and assuming the same fees and fund options for both)?

This is the reason why I went with 457 over 401k.

 

[Yellow mellow]

If you have the money, why not do both? Make sure the 457 is a governmental program rather than a nongovernmental one. That matters as far as the security of the money should your employer go broke.

Look at the funds available to you in each and determine the lowest cost funds that fit your asset allocation between all of your accounts.

As for the IRA, you likely will make too much to contribute directly, but your have the back door Roth as an option.

Thanks, I'll look into back door Roth. I would contribute to both if I had the funds.

 

[Plastikos]

Technically a 457 is the employers money not yours, but governmental are so much better than the non profit type which can hold your deferred compensation until you reach retirement age. There are several ways to get your money penalty free before retirement age as well.

You're also concentrating more risk with your employer. This may admittedly be minimal but you never know.

 

[cpants]

Maxing out an HSA is not a bad idea (after maxing other options) assuming you have high enough deductible on your health insurance (which increasingly all of us do). Tax free contributions, tax free withdrawals to pay for healthcare costs, money grows tax free, and can be withdrawn (with tax like a 401k or IRA for general use, or without tax for medical expenses) after age 65 without penalty. Most HSA providers allow you to invest in limited option mutual funds and ETF's after a certain level of funding.