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cloudeleven

Should I Invest In A 457(b) Or A Roth Ira?

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I am a state government employee, and a 457(b) plan is available to me. I am 25 years old and make $31,500 a year. The maximum I can contribute to the 457(b) plan is $15,000 per year, and the maximum I could contribute to a Roth IRA is $4,000 per year.

 

I plan to invest around 20% of my annual income, which this year would be about $6300. Should I put all of this in the 457(b), or put $4,000 in a Roth IRA and the remainder ($2300) in the 457(b)?

 

Thanks for your help.

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It depends on the availability of low cost equity funds in your plans. If the 457 allows you to invest in companies like Vanguard, go for it. If not avoid it like the plague.

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No. It depends on whether or not you want to pay taxes now or later.

 

Considering a) you are in low tax braket now and b) tax rates are very low, you would want to first max out the Roth IRA at $4,000. After that you probably want to use the 457, depending on the quality of investments available.

 

GG

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Hi clouldeleven,

Just wanted to say congratulations! for starting your retirement planning so young. In 30 years, you will be very happy and proud that you did what very few other people your age do today, plan for the future. I didn't start until I was 37 and at 58, I am very happy I did and will allow me to retire at 60.

SDWS11 said it exactly right, go with Vanguard. If not available, look for any no load company such as TIAA CREF, Fidelity Investments. I agree with gassert on the tax question.

Good luck,

Steve

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