Looking to retire ~20 years early, obviously leaves a big gap. I feel like I know the answer but just wanted to make sure there wasn't something I was missing.
Current priority list with the percentage of contribution limit we're funding each right now:
Trad 457 – 100%
Trad 403b/401k – 50%
Roth IRA – 0%
Taxable brokerage – 0%
Higher income household planning on early retirement, wife has access to a 457, the top priority should be to shovel as much money into the 457 over other options correct?
byu/flobbley inpersonalfinance
Posted by flobbley
15 Comments
How old will you be at retirement? What’s your plan for income at retirement? We fired 13 months ago and it was great having money in all buckets to avoid/limit taxes and penalties.
You need access to $$$ that’s not subject to early withdrawal fees. Assuming you are stating you’re retiring at 47, you 12+ years of income that’s free of these fees.
IF on a HDHP, fund to the max the HSA. If retiring 2 decades early going to have a ton of medical costs that the HSA can pay for tax-free. Unless of course this is a public sector pension that also provides health insurance bridge to Medicare.
Is post tax 457 available? If so, I do that. Reasoning being that a lot of government jobs have pensions that are all pretax dollars, add social security in, and pretax 457 and you’re pulling a ton of pretax money out. Reallocating 457 to post tax helps balance this out.
Fidelity has a write up of 457b vs 401k and 403b here:
[https://www.fidelity.com/learning-center/smart-money/what-is-a-457b](https://www.fidelity.com/learning-center/smart-money/what-is-a-457b)
The only thing that really stands out to me is that non-governmental 457b are not subject to ERISA and do not have creditor protection, so if the organization defaults on a loan creditors may be able to pull from your 457b since it’s still kind of the organization’s money.
I don’t know that it makes a difference between 457b/403b/401k beyond that, as long as you’re not hitting your annual max contribution. If the wife is putting 100% of her salary into her 457b then anything over $24.5k will be double taxed.
How will you cover medical insurance for 20 years?
You’ll get better answers in /r/financialindependence but yeah, 457s are ideal for early retirement. Max that out before other accounts, as long as you’re capturing any potential 401k match, which it looks like you would be.
Is this a government or non government 457? If it’s government, I’d put as much as possible into it.
But without any numbers it’s really hard to predict where you should be focusing on filling next.
If you are higher income you can max all of them. If you are moderate income you cant.
Trad 457b (if governmental)
Trad 403b if applicable (this is a separate limit to 457 even if its the same job, but the limit for 403 is shared with 401)
Trad 401k (shares limit with 403b in the same year per person, but still a separate limit to 457)
Roth IRA (per person)
HSA (one family limit, even if multiple HSAs)
Taxable brokerage (unnecessary as the above would get you like 90k a year in retirement savings).
So my only critique would be, with the plan the way it currently is, you will have zero flexibility with regard to tax deferments. All of your investments are or will be tax deferred, so when you start withdrawing, you will have no control over your tax situation. Like what dollars in a Roth IRA or a taxable brokerage account would give you.
Personally, I would still want *some* post tax so you have flexibility.
Maxing out pre-tax accounts is great. At a certain point the pretax account will grow and your RMDs would be a higher tax bracket. So I would recommend only 1/2 of your retirement investments in pre-tax accounts if you are going to have over 2.5 million in pre-tax accounts when you retire.
Former govt employee who retired before 40 here. I maxed HSA first, then 457, then Roth IRA, and whatever else I could into a 403. I also had a 401a instead of a pension. I rolled the 401 and 403 into a trad IRA. I left the 457 bc of the lack of early withdrawal penalty. Over the first several years of retirement, I did ROTH conversions to create income for the ACÁ and to effectively make pretax money never get taxed. Added bonus is those conversions can be withdrawn penalty free after 5 years. I’m 10 years into ER and have more money than I did 10 years ago.
If you are trying to control your income during certain years having a taxable account to draw from could come into play.
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