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Ask Money

Saving for Retirement

Chris Farrell Feb 28, 2008

Question: I’m a 30 year old who works at a public university. I think I’m eligible to deposit $15,500 at my 403b and another $15,500 at 457b. I plan to deposit $31,000 every year for 30 years and start to withdraw when I get 60. My job is very stable. Our current tax rate is about 28%. Should I do that? Thanks, Qin

Answer: Yes, you can do that. It isn’t well known, but through a quirk in the law anyone with a 401(k) or a 403(b) can double the amount they put into their retirement savings if their employer also offers a 457 (which is just another retirement plan). I applaud your discipline and aggressiveness when it comes to savings.

Because you want to retire at 60, I’d like to toss out an alternative idea: Put some of your planned savings into a taxable account. Don’t put it all into a pension plan. The reason is that then you’ll have a pool of long-term money that you can tap until you’re 59 1/2 without paying the 10% penalty imposed by the government on early withdrawals from a pension.

You’ll still want to keep your annual tax burden low, say, by investing the money in tax-managed account, broad-based equity index funds, inflation protected savings bonds (the I-bond), and the like. Good savers should always consider a balance of tax-sheltered and taxable accounts.

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