Roth IRA vs Roth 457b - Does it matter?
*Preface: I'm just a normal person working a normal job with a normal family. I enjoy seeing the success stories here, but to those of you still in the weeds like me (I'm worth negative $$$), keep at it!
Following the FOO, deeeeeep in the messy middle, and getting serious about retirement planning. Looking for opinions on whether I should prioritize a Roth IRA or Roth 457(b) once we finish cleaning up debt. Is there any particular difference or benefits I'm misunderstanding between the 2?
Current situation:
- Married filing jointly, both age 24
- One-income family of 5.
- Salary $87k currently
- Guaranteed raises to $92k and then $96k within the next 2 years
- Strong pension plan:
- I contribute 1.15% of salary
- Pension accrues at 2% of salary per year
- Vesting in 1.5 years
- No current plans to leave
Following the FOO:
- Step 1 complete
- Step 2 N/A
- Step 3 underway
- Step 4 will be done before 5 & 6
- Preparing account structures for Step 5 & 6
Assets / liabilities:
- Home value: $130k
- Mortgage: $113k
- Pension contributions: $11,500
- Credit cards: $12,000
- Car loans: $24,500
- Medical debt (including collections): $5,000
- Other 0% debt: $4,800
Once the credit cards are gone, we'll have about $793/month available to invest (including current monthly cash surplus). Once the cars are paid off, that frees up another $732/month. They're technically not high interest for our age, but I want to get them within 20/3/8.
My employer offers a governmental 457(b) with both Traditional and Roth options. At this point, I'm mostly interested in Roth contributions because of my age and expected future income.
The pension is a unique factor as well. These contributions are required and totally separate from the investment cash I discussed above.
If I stay with this employer for 40 years, the projected benefit at my NRA of 65 would be around $129k/year. If I leave after roughly 17 years, the projected benefit would still be around $60k/year. These are equivalent to a 4% draw on $3,225,000 and $1,500,000 respectively. I'm considering a private sector switch at some point, so this will fluctuate depending on the timeline of that.
Because of that, I expect to have significant taxable income in retirement regardless of what I do with additional savings.
My question is:
If you were in my shoes, would you prioritize:
- Roth IRA first, then Roth 457(b)?
- Roth 457(b) first, then Roth IRA?
- Split contributions between both?
- Excess will go to the 457b and then spill into taxable brokerage as well.
I like the flexibility of the 457(b) since it can be accessed penalty-free after separation from service, but I also like the flexibility and investment choices available in a Roth IRA. Not super sold on FIRE or anything like that, but not sure where I'll be in 20 years.
Curious what others would do and why.