My wife's plan through Katy ISD is managed by TCG and they charge a .85% admin fee. Trying to compare utilizing ROTH 457B vs a brokerage account.

Is anyone contributing to a 457B?

Bumping and re-stated my question for clarity

0.85% seems criminal

BDJ_AG said:

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My wife's plan through Katy ISD is managed by TCG and they charge a .85% admin fee. Trying to compare utilizing ROTH 457B vs a brokerage account.

Is anyone contributing to a 457B?

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No I'm not contributing to a 457(b), but I understand a little about them.

There are a couple of factors that would go into your decision regarding whether it makes sense.

• Employer Match: Maximize any employer match offered in the 457(b). If any. While not common, it's technically possible to have an employer match, and I don't know the details of Katy's plan. Don't give up free money.
• Then if you aren't already doing this, I'd put available funds to a Roth IRA. But, the contribution limit is lower ($7k or $8k, depending on age)
• If you have money left over, I'd consider putting it toward the Roth 457(b) before a taxable brokerage account. Despite the 0.85% fee (plus, whatever fees the underlying investments have), it could still be a much better deal than a taxable account. The contribution limit for this is $23,500 (or as high as $34,750, depending on age)

Is there a 403(b) available in addition to the 457 plan? Many school districts allow employees to open accounts at Vanguard, Fidelity, etc, that are funded with payroll deductions. If Katy ISD allows that, it almost certainly is less expensive than the 457, which is probably a captive insurance product.

Other than potential contribution matching (which makes it attractive), the only other positive for the 457 I can think of is if it offers in-service loans. While I STRONGLY recommend against using retirement funds for another purpose, it DOES provide some flexibility and access in the case of an emergency.

If it offers neither of these, I'd probably recommend against it vs. other alternatives.

My original post had a lot more info, but I think it was too much to read…

We already max out ROTH IRA's, her 403B, and my 401k. There is no match available to take advantage of.

Based on some AI run calculations the 457B vs Brokerage end result is very close, but obviously varies by return %. The lower the returns the better the brokerage looks and vice versa for higher returns. The 457B mgmt fee hits regardless of returns, so you get dinged in down markets.

The 457 can be a powerful tool to defer additional income, effectively doubling what you can defer in the 403(b). Occasionally I have a client with high income that is married to someone that teaches or works in a hospital that has both plans available and I will recommend deferring more if the spouses salary if the client has maxed out their deferred choices. But the caveat is that you have to believe that when they withdraw the funds, they will be in a lower tax bracket. That would be my main focus. If you feel confident that the differential in taxes will be significant (let's say 8%+), it may be worthwhile to consider the 457 even at the higher cost. You can always roll it over after retirement to a lower cost IRA.

That's the crystal ball I don't have. With teacher pension, my anticipated company stock, traditional 401k distributions, etc., we could very well be in a similar tax bracket.

Currently using the ROTH option of the 457B, but have done some traditional as well.

You can model that but the devil is in the assumptions. You also left out future tax rate changes as another variable. I use the models to make broad brush recommendations. RMDs are the main driver of pushing folks that have deferred too much income into higher than desired tax brackets. There are just too many variables to give general advice here but it's a good "problem" when you're trying to determine where to put your extra money!