457 Plan: Roth vs. Pre-tax

457 Calculator

Are you trying to decide between roth 457 vs traditional 457, for your retirement plan contribution?
A roth 457 plan vs traditional 457 contribution can be an effective retirement tool, that gives you a few options of how to contribute towards it. It basically comes down to when you will need the funds, and when want to pay the taxes- now, or later.

457 PLAN: ROTH 457 VS. TRADITIONAL

The traditional 457 pre-tax election allows you to make contributions from your income before taxes. This can help lower your current income taxes, while allowing you to put more money towards your investment, and in turn earning more dividends.Both your contributions and earnings will grow tax- deferred until you are ready to withdraw your investment. When the time comes for withdrawal, your investment will be considered ordinary income, and will be taxed at the current rate.On the other side of the spectrum, is the Roth 457 contribution. Your contributions are made after taxes, so there will be no tax deductions when you want to access your investment.  However, there are penalties if you choose to withdraw your investment or earnings before the age of 59 1/2, and if the account is aged less than 5 years.

 

So, which method will help you get the most out of your investment or earnings? This calculator will help you figure all that out.

 

 

Your age now will help us calculate how much you can earn with your investment by the time you are ready to retire. The earlier you start your contributions the greater potential you have for earning more dividends for your retirement. It is also worth noting that if you are doing Roth contributions, you must have the account for a minimum of 5 years to be eligible for tax-free earnings at the age of 59 1/2.

 

 

This is your planned age of your retirement. It is presumed by our roth 457 vs traditional 457 calculator that you are going to contribute to the account until the year before your retirement. Therefore, your final payment in 457 will take place exactly at the age of 62 if your retirement age is 63.

 

Also, Roth savings are only eligible for tax-free deduction at the age of 59 1/2, so if you need the funds sooner we will have to calculate how much penalties you may incur. You should also consider using pre-tax contributions if you suspect you need your investment before that age.

 

 

This is the amount you want to  contribute to your roth 457 vs traditional 457 account annually (per year), as such this calculator assumes that you are making 12 equal contributions throughout the year, at the beginning of the month. The yearly maximum contribution for 2017 is $18,000. Its best to take advantage of these retirement plans and contribute as much as you can.

 

If you are over 50 there is a “catch up” provision which allows you to make additional contributions to your roth 457 vs traditional 457 plan. This provision allows those employees to deposit an additional $6,000 per year, as of 2017.

 

There is another provision that allows further contribution for ‘highly compensated’ employees, based on their employers overall 457 plan participation. In order to be classified as a ‘highly compensated’ and considered for this provision your salary must be $120,000 or more.  You should contact your employer whether such contribution limit is applicable for you or not.

 

Your yearly maximum contribution limit to 457 roth vs 457 traditional account is not affected by the employer’s matching payment. The annual maximum and catch up provisions are both indexed and adjusted for inflation, so these figures are always subject to change.

 

 

You can check this box to increase the amount of yearly contributions to your roth 457 vs traditional 457 to the highest limit permitted by the federal tax authority. The yearly maximum contribution is $18,000 for 2017. This incremental contribution will take into account the foreseeable periods which must meet the criteria for catch-up contributions.
Therefore, your maximum contribution could potentially be increased by an additional $6,000 per year after you reach 50 years of age, if you so choose.

 

Use this selection to invest any tax savings created by your pre-tax contributions to a roth 457 vs traditional 457. By investing your tax savings, the total cash flow between the two account types can be balanced out  annually.
You save money with your pre-tax contributions by reducing your taxable income, to result in less taxes owed at the end of the year.  It’s wise to invest those savings into a tax free Roth plan, as without the 457 plan contribution you would have paid the full amount to the federal government. If you don’t reinvest these savings you are actually greatly increasing your ‘spending’ per year.

 

For example, if you are making $75,000 you will pay 15% on your taxes, equalling $11,250 in federal taxes for 2016. If you contribute $15,500 pre tax to your 457 plan, your taxable income then becomes $59,500, and the %15 tax bracket dictates that you will pay only $8,925. This creates a surplus of $2,325 for the year, which can then be added to your Roth to reach your maximum contribution for the year (total investment into 457 plan = $15,500 + $2,325= $17,825).

 

You can leave this box unchecked if you have no ability or desire to create an additional investment account.

457 roth

 

The expected rate of return from your 457 accounts. The actual rate of return relies on the investment portfolio. By reinvesting the dividend in the capital structure, the S&P made 7.7% annual return in last 10 years & almost 10.1% annual return in last 43 years. But the annual rate of return of the S&P was not stable, as there were periods of -43% returns.

 

This type of instability in earnings may lead to capital loss. So, a more stable alternative is to deposit money in the savings account of a financial institution as it offers as little as 0.25% or less interest rate but minimizes the risk of capital loss.

Its important to note that future rates of return are based on hypothetical scenarios, and can’t be predicted with certainty. Investments that have higher ROIs are subject to higher risk and volatility, and the actual rate of return can vary widely over time, especially for long term investments. In some cases, there can even be a full or partial potential loss of principal on an investment.

 

 

Present marginal tax rate that you need to pay on your taxable investments.
 2016 Brackets and Rates  
RateSingle FilersMarried Joint FilersHead of Household Filers
Source: https://taxfoundation.org
10%$0 to $9,275$0 to $18,550$0 to $13,250
15%$9,275 to $37,650$18,550 to $75,300$13,250 to $50,400
25%$37,650 to $91,150$75,300 to $151,900$50,400 to $130,150
28%$91,150 to $190,150$151,900 to $231,450$130,150 to $210,800
33%$190,150 to $413,350$231,450 to $413,350$210,800 to $413,350
35%$413,350 to $415,050$413,350 to $466,950$413,350 to $441,000
39.6%$415,050+$466,950+$441,000+
2017 Single Rates 
RateIncomeTax Owed

10%

$0 – $9,32510% of Taxable Income

15%

$9,325 – $37,950$932.50 + 15% of the excess over $9325

25%

$37,950 – $91,900$5,226.25 + 25% of the excess over $37,950

28%

$91,900 – $191,650$18,713.75 + 28% of the excess over $91,900

33%

$191,650 – $416,700$46,643.75 + 33% of the excess over $191,650

35%

$416,700 – $418,400$120,910.25 + 35% of the excess over $416,700

39.60%

$418,400+$121,505.25 + 39.6% of the excess over $418,400
2017 Married Filing Joint Rates 
RateIncomeTax Owed

10%

$0 to $18,65010% of taxable income

15%

$18,650 to $75,900$1,865 + 15% of the excess over $18,650

25%

$75,900 to $153,100$10,452.50 + 25% of the excess over $75,900

28%

$153,100 to $233,350$29,752.50 + 28% of the excess over $153,100

33%

$233,350 to $416,700$52,222.50 + 33% of the excess over $233,350

35%

$416,700 to $470,700$112,728 + 35% of the excess over $416,700

39.60%

$470,700+$131,628 + 39.6% of the excess over $470,700
2017 Head of Household Rates 
Rate IncomeTax Owed

10%

$0 to $13,35010% of taxable income

15%

$13,350 – $50,800$1,335 + 15% of the excess over $13,350

25%

$50,800 – $131,200$6,952.50 + 25% of the excess over $50,800

28%

$131,200 – $212,500$27,052.50 + 28% of the excess over $131,200

33%

$212,500 – $416,700$49,816.50 + 33% of the excess over $212,500

35%

$416,700 – $444,500$117,202.50 + 35% of the excess over $416,701

39.60%

$444,550+$126,950 + 39.6% of the excess over $444,550

 

457 Traditional calculator 

This is the marginal tax rate that you anticipate to pay on your investments at the time of your retirement. Estimate how much income you will need per year of your retirement and identify the tax bracket that you would be placed in. While these figures change yearly, the changes are fairly minimal so do your best to make an appropriate estimation.

 

457 roth calculator

 

This is the full estimated value of your 457 plan account. The total value of the account has two portions- your roth 457 vs traditional 457. Your traditional pre-tax 457 earnings are is subject to taxes on withdrawal, while your Roth 457 contribution is tax free and available to you after the age of 59 1/2.