Leader

Collapse

Announcement

Collapse
No announcement yet.

Deferred Compensation which should i choose ?

Collapse

300x250 Mobile

Collapse
X
 
  • Filter
  • Time
  • Show
Clear All
new posts

  • Deferred Compensation which should i choose ?

    Hey everyone,
    So I have the deferred compensation paper work in front of me and I'm having difficulty choosing between a 457 and a 457 Roth. Im up in the air about which to choose, was wondering if anyone here has any input on how their plan is working out for them. Any suggestions on which i should choose? Thank you for any responses.
    NYPD P.O EXAM (03/14)
    Test# 4324
    List #: XX
    APD-5: completed (03/2016)
    Medical: Qualified (07/2016)
    Psychological: Qualified (8/2016)
    B.I.: Qualified (8/2016)
    JST: Qualified (9/2016)
    Mini: Qualified (9/2016)
    Got the call:

  • #2
    It all depends on a combination of your amount of income, your spending needs and your tax needs.

    Normally, you pay income tax on your salary. Under the regular 457 plan, money diverted from your salary and invested in the plan is not taxable until you withdraw it at retirement. Depending on how much you divert to the plan and how much you are making, this can significantly reduce your taxes not only by reducing your income, but by putting you in a lower tax bracket because on paper, you have made less. When you withdraw the money in retirement, you are probably making a lot less, so your overall taxes on that which you withdraw will probably be less.

    With the Roth 457, you pay full taxes on your salary and get no deductions for what you put in the plan. However, after leaving the money in the plan for a certain number of years, once you withdraw it, any profit earned is tax free. This woirks if you don't need a lot of deductions when you make your contributions.

    I chose the regular 457 plan because I had a lot of outside income from rental property, which boosted my overall income and put me in a higher tax bracket. My employer offered both a 401K and a 457 plan. I contributed to the max on both, significantly reducing my department salary on paper, offsetting my rental income and keeping me in the lower tax brackets. OTOH, if you just do the short form tax return, the Roth 457 might be better for you.

    You really need to sit down with a pen and paper, and if you income is about the same as last year, pull out the tax forms and re do your taxes twice, once as if you did the regular 456 and a second time as if you did the Roth using the amount you feel comfortable contributing. That will give you a ballpark idea as to how much it will affect your taxes and how much it will cut into your available spending money.





    Going too far is half the pleasure of not getting anywhere

    Comment


    • #3
      Good points. Another thing to keep in mind (at least in NY anyway) is that once you're retired and 59 1/2 years old, you can take $20,000 out each year and not pay state income tax on it
      RETIRED 9-16-10

      Comment


      • #4
        Originally posted by L-1 View Post
        It all depends on a combination of your amount of income, your spending needs and your tax needs.

        Normally, you pay income tax on your salary. Under the regular 457 plan, money diverted from your salary and invested in the plan is not taxable until you withdraw it at retirement. Depending on how much you divert to the plan and how much you are making, this can significantly reduce your taxes not only by reducing your income, but by putting you in a lower tax bracket because on paper, you have made less. When you withdraw the money in retirement, you are probably making a lot less, so your overall taxes on that which you withdraw will probably be less.

        With the Roth 457, you pay full taxes on your salary and get no deductions for what you put in the plan. However, after leaving the money in the plan for a certain number of years, once you withdraw it, any profit earned is tax free. This woirks if you don't need a lot of deductions when you make your contributions.

        I chose the regular 457 plan because I had a lot of outside income from rental property, which boosted my overall income and put me in a higher tax bracket. My employer offered both a 401K and a 457 plan. I contributed to the max on both, significantly reducing my department salary on paper, offsetting my rental income and keeping me in the lower tax brackets. OTOH, if you just do the short form tax return, the Roth 457 might be better for you.

        You really need to sit down with a pen and paper, and if you income is about the same as last year, pull out the tax forms and re do your taxes twice, once as if you did the regular 456 and a second time as if you did the Roth using the amount you feel comfortable contributing. That will give you a ballpark idea as to how much it will affect your taxes and how much it will cut into your available spending money.




        Thank you for your response it has definitely been helpful. Im going to look more into both and try to make a determination. I guess you can say problem for me is I'm 21 and this is my career job probably until retirement at 46, so I've never had a real income/ tax return to base my choice off of to make the choice that would be better (if that makes sense.) Looks like i have a lot of homework to do before i make a decision, initially i was leaning to the roth but now it seems like the regular 457 might be the better option. Thanks again!
        NYPD P.O EXAM (03/14)
        Test# 4324
        List #: XX
        APD-5: completed (03/2016)
        Medical: Qualified (07/2016)
        Psychological: Qualified (8/2016)
        B.I.: Qualified (8/2016)
        JST: Qualified (9/2016)
        Mini: Qualified (9/2016)
        Got the call:

        Comment

        MR300x250 Tablet

        Collapse

        What's Going On

        Collapse

        There are currently 8985 users online. 429 members and 8556 guests.

        Most users ever online was 19,482 at 11:44 AM on 09-29-2011.

        Welcome Ad

        Collapse
        Working...
        X