Several retirement accounts or one?

Question

I'm thinking about opening some retirements accounts and contribute very modestly. What would be better, to have a 457 and a roth IRA and contribute a little to both or just one of these and contribute more? I'm talking here about the regular conservative accounts not the aggressive investing. and I plan on leaving it there until I retire and then take out the whole thing.

Answer 1

This is a difficult question to give a good answer to. As you are aware contributions to Roth IRA accounts are after tax contributions. Contributions to 457 accounts are before tax contribuitions. But that is just the beginning of the complexity. When you withdraw the money from the 457 it is taxed at the full tax rate. When you withdraw money from a Roth IRA account it is not taxed at all. And of course neither is taxed while the funds remain in the account.

One advantage of a Roth IRA maybe is that you are in full control. The 457 offers all kinds of investment options, but perhaps not ones that you would wish.

There is perhaps a disadvantage to the Roth IRA option. That is that almost all of the mutual funds and brokerage accounts where you can establish one have a minimum that is fairly substantial. Perhaps $2500. There is no minimum with the 457. Just put in what you wish.

Now one thing that you need to be aware of is that if the 457 is provided by a non-profit (tax exempt) organization, I believe that it might be subject to seizure by creditors of the organization. Government sponsors plans are not.

If your current tax rate is not great, it may be to your advantage to use the Roth IRA. You may think this is far fetched, but it is possible that your retirement funds could grow into a very large amount and when you finally have to begin taking distributions, you may have to take a fairly large sum, more than $250,000 annually on which you will have to pay taxes if it is not a Roth IRA account.

Let us assume that you are 25 year old and will work until you are 65. And that your account will earn 10% annually, about average for equity based accounts based on history. And that you contribute $4000 annually. When you are 65 you will have $1,770,000 in your account earning $177,000 annually. Think about that for a moment.

Answer 2

You should take out a Roth IRA only after you have contributed the most to your 457 that you can. If you still have money then open the Roth IRA. Regarding your 457, you can contribute to one mutual fund and still be diversified. An example would be Vanguard Total Market Index Fund, rated in the top 10 of over 4000. It's no load(no commissions) it buys the whole market and it's one I have recommended to all my sons. In any event, stay with an Index Fund. That is your best choice. Good luck.

Answer 3

Most people are conditioned to think only of government retirement accounts like a 401k,IRA, 457, and Roth IRA. All of these accounts, one way or another, put you in partnership with the government in planning for your retirement. No one considers this a risk but you definitely should. Congress can change the rules on these accounts at any time. After all, they created them in the first place. How many times has social security been modified? It was also promised that it would never be taxed. How good is that promise now? I would do research on overfunding private life insurance contracts. When set up properly, they are funded with after tax money utilizing the minimum death benefit possible in order to accumulate cash values as efficiently as possible. The safest model is based on The Infinite Banking Concept which is the originator of the strategy. You can find an authorized practitioner in your state by visiting the www.infinitebanking.org website. I'm licensed in CA and other states. Where I'm not licensed, I refer to other authorized advisors. Also, Pamela Yellen has a very informative website at www.BankOnYourself.com where you can also learn more. No matter which organization you work with, make sure you are working with an authorized advisor who is recommending a dividend paying contract for the account. If the contract doesn't pay dividends, you are not working with the right advisor. You can have multiple accounts if you like and what you do with the cash values is ultimately up to you but you won't have the government interfering with your cash values. Remember this, too, life insurance companies are the only financial institutions that can guarantee you an income for life. Fund a 401k/IRA as 2nd or 3rd choice if you are going to do it. There are safer and better options that Wall Street and Uncle Sam have nothing to do with.

Answer 4

If your company matches contributions the the 457, contribute to the 457 up to the match. Then to the Roth IRA to the max. Then the rest of the 457 if you still have money to invest.

Answer 5

You should carefully understand your 457 since it gives your employer more flexibility and discriminatory power see - http://www.fool.com/Retirement/RetirementPlanning/RetirementPlanning15.htm . If you consider your 457 "good" you should contribute to the 457 where the contribution limits are much higher than an IRA, if not then max out on the IRA where the tax benefits are guaranteed.

Answer 6

I would recommend the Roth. I have an IRA from my husband-- standard-- and now pay a lot in taxes each time I take money out. You are taxed as regular income on this one.

Answer 7

The retirement account money is already not taxed. So no. Same for the flex plan. It's already not taxed. Not sure what a vacation account is, but again, no.