457b Roth portfolio

One step target

Are you already maxing a Roth IRA? Does your employer match any portion of your contributions?

Most employers don't match 457's since they tend to be government agencies with pension plans already. So I wouldn't even go anywhere near the 457 unless you're already maxing a Roth IRA for you and your wife if you're married.

With a Roth IRA, you can pick your own funds (i.e. Vanguard) and will probably out-perform whatever funds are available through your employer's 457 plan. Even a 1% difference over 20+ years is extremely significant in this regard. Like hundreds of thousands significant.

With a Roth IRA, you can withdraw your contributions at any time, for any reason, tax and penalty free which is awesome. A 457 only allows you to withdraw money after leaving your employer. This fricking sucks. You can't touch your money until retirement or unless you quit or get fired etc. or have a qualifying emergency. Again, this fricking sucks. In a 401(k) with an employer match, this is sort of the trade-off for getting the free money from your employer. But if your employer doesn't match any portion of 457 contributions, you are just getting fricked for nothing.

Employees are lured into 457's based on the ability to make withdrawals at retirement, rather than at 59 and 1/2 years old. So people that start working for an employer at 18 or 21 and retire after 30 years can withdraw money tax and penalty free immediately at 48 or 51 rather than waiting another 10 years to draw money. But this is a bunch of bullshite too.

With a Roth IRA, you can withdraw contributions tax and penalty free anyways. So after 20+ years of maxing a Roth IRA, the same employee can still access a good chunk of change if needed prior to 59 and 1/2, plus being able to access all the contributions along the way if needed. Plus, you would ideally leave either account alone until your 60's for more growth prior to really needing much or any of the money, so the supposed access to the 457 money prior to 59 and 1/2 is probably a useless benefit.

And to "buy" that probably useless benefit, you are giving up control of the money for several decades, you are dealing with what is probably a shittier company than Vanguard and probably getting a lower rate of return than Vanguard and having fewer and worse options of how to invest the money.

The ONLY positive thing about a non-matched 457 is the higher contribution limit but that's just a pipe dream for most people earlier in their careers and with young families etc.


So all of that said, my hierarchy would look like this (if you're married and your spouse works and has a matched retirement account at work): max out your spouse's matched contributions, then max out whatever employer match you receive in the 457 if you receive one, then max out a Roth IRA for you and your spouse, then put money in your spouse's 401(k), then put whatever is left in the 457.

As for how I would allocate the 457 money, I did a quick Morningstar search on alot of the funds available to the 457 and many of them look really terrible to me (significantly underperforming S&P). Of the ones I checked, the E/Q Large Cap Growth Index is what I would probably do, assuming it is this fund:

LINK

Wow, thanks for the very good info. To answer and few of your questions, I do not currently max out an IRA. I currently have a pension plan, and my wife also has an IRA that her employee matches. That is all we have currently, which is why im looking to get extra, just dont know what exactly yet. I have a decent amount of money in savings that I need to invest, but would take a long time with a traditional Roth, which is why I was thinking the 457b would be better. I have alot of thinking to do after this post.

ETA: I am totally unfamiliar with any of this.

And if Vanguard is the best, can I meet with someone locally from that company? And how would you distribute the funds for it? One step?