alexseanchai: Supernatural's Crossroads Demon from 3x05 (brb selling soul)
[personal profile] alexseanchai posting in [community profile] actyourwage
Dear Mother, the correct response to 'hey, you used to have a personal finance qualification, can you check my math on the taxes on this paycheck vs the preceding paycheck, how come my estimate is so off' does not actually include 'maybe you should buy less junk food and do less online shopping'. That just makes me want to BUY ALL THE THINGS.

Actual answer appears to be 'payroll taxes went up' with a side of 'reinstate the automatic deduction for retirement savings, it actually will do you more good accumulating interest than reducing the credit card interest you need to pay'. On that subject, she went on for a while about Roth IRAs--does anyone have a compare-contrast for Roth IRAs vs 457(b) accounts? Or vs 401(k) accounts, I'm pretty sure 457(b)s are like 401(k) accounts in all the ways except whether the owner is a public- or private-sector employee. I know 457(b)s get taxed when the money comes out, Roth when the money goes in, which I think means the difference between 'money I put into account' and 'money in account' is taxable with 457(b) but not with Roth...

(no subject)

Date: 2013-02-20 04:25 pm (UTC)
silveraspen: evie looking for the answer on the stone (mummy: the answer is here)
From: [personal profile] silveraspen
As best I can tell, you're right on the 457(b) v. 401(k) comparison; it's sometimes easiest to think of the 457(b) as a replacement/alternative plan offered by governmental/public-sector agencies. There are a few minor differences between it and a 401(k), like the fact that there's no 10% penalty for withdrawal before age 60.

I gather that there are some situations in which private-sector companies can offer a 457(b) as well -- possibly in addition to a 401k? Not sure about that -- the kicker there is that the private, non-governmental version doesn't belong to the employee until it's actually withdrawn. It stays considered a "company asset," which means basically that if the private-sector company went bankrupt, its 457b plan could be taken away and given to creditors.

If it were me, I'd use the 457b in a public-sector situation as the 401k replacement it's intended to be, and stay far away from it in a private-sector/non-governmental situation.

As far as the Roth IRA goes, the advice I've always been given (take with all the salt you feel needed) is that Roth IRAs are best when you think your tax bracket/tax rate is going to increase in the future. In that case, you pay your taxes up front on the money you invest in it, and don't pay any tax on what you withdraw. The traditional IRA, you pay at time of withdrawal - so it's really more tax-deferred than tax-free. If you're in a higher bracket then, you end up paying more tax; if you're in a LOWER bracket in the future/at time of withdrawal, you pay less. It's a guessing game in that regard, really.

But I think that you're right, with a Roth your interest-earned income wouldn't be taxable, because you've decreased the base up front at the time of investment. IRS publication 590 has a much more detailed explanation of this and all other IRA-related matters.

(no subject)

Date: 2013-02-20 06:58 pm (UTC)
silveraspen: silver trees against a blue sky background (Default)
From: [personal profile] silveraspen
Hard to say without knowing specifics -- and for the record, I don't work in finance, so I can't offer anything in the way of professional expertise!

That said, one question I would ask myself in your situation is whether or not your employer does any sort of matching contribution for the 457(b) plan. If they do, then maximizing your input there first might be wiser, because it's basically increasing your dollars without you having to add more $ out of pocket.

Also, the 457b contributions come out before your tax bracket is calculated, so reduces your annual tax burden.

(no subject)

Date: 2013-02-20 09:40 pm (UTC)
drunkoffthestars: (Default)
From: [personal profile] drunkoffthestars
To supplement the above reply: I have both and contribute to both. The contribution limits for the Roth IRA are $5,500/year for 2013 and the limit for the 457 is something on the order of $17,000/year (haha I wish I could put in that much).

I had the option between the 457(b) and the 403(b), and took the 457 because of the lack of early withdrawal penalty (though you do have to pay income tax on the withdrawal). The way I see it, the Roth IRA is preferable for me because I'm paying tax on the $5,000 I put in, and I never pay tax on that money ever again, no matter how much it grows. Also, I don't make very much money right now, so (hopefully) my tax bracket will be higher in the future.

I contribute to my 457 enough to drop me back into the next tax bracket down (I'm just over the cutoff) and (try to) max out my Roth, though my monthly contributions to both vary with my other financial goals.

Obviously mileage varies with regard to your income level/tax bracket/savings goals.

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