New Retirement Planner with Questions

[dx_caliber]

Newbie here !

Stats: 25/Single/Claiming 2 Allowances

I currently work as law enforcement for the state which offers a 457 (deferred comp) plan which I've been paying into the last couple of years. I have approximately $1,800 in this account. I have 4 years with this agency which requires 6 years to vest and own any sort of my retirement benefit, so my state pension is off the table.

Here's the deal, I'm starting a new job and want to go ahead and get some of my retirement planning ironed out and would like a little bit of advice. I'll be making approximately $40-45k as an officer with a local city that I start with next month. Their pension plan requires me to pay in 8.5% of my salary. The city pays in 17%. The accrual rate is 2% for the first 10 years, 3% for the following 20, & an additional 1% for any years following that. They also offer a 457/deferred comp plan but since I'm currently in the lowest tax bracket I was thinking it would be the better decision to open a Roth IRA and make contributions to that rather than the 457 plan with my employer.

I currently have ~6 months worth of cash to cover bills in my savings plus an additional ~3k in my checking. When I leave the state's employ I should be receiving a payout for my unused leave that is worth 4-5k. I was planning on rolling over the 457 deferred comp amount I have with the state to a Roth IRA & then using the leave payout to go ahead and fully fund my Roth IRA for 2013 and then every paycheck divert $210 into a savings account so that next January I can fund my Roth IRA for 2014.

I figure if I get a raise/promotion that puts me close enough to the next tax bracket, I can then contribute just enough money to my employer's 457 plan to keep me in the lower bracket.

How does all of this sound? Should I be contributing more or less, split investments between 457/Roth IRA? How would you go about it? Thanks in advance!

[smk]

i think you need the formulas for the future value of stocks or bonds in the various accounts. they tend to use rules of thumb in financial planning to make these decisions which are wrong as often as they are right. so the formulas are better. on this page Integrated Financial Westchester and NYC - Roth there is an explanation of whether you want to use a traditional ira vs a roth for bonds. if you are in a very low tax rate and expect it to go higher, you may want to consider converting some of your trad ira funds to roth iras up to the point where you tax rate bumps up. i can follow up with the specific formulas on that. i am not sure of your federal rate now or state tax rate and what you expect in the future, but in low tax rate you might wind up best with putting interest bearing instruments in taxable accounts and stocks in a roth. the formulas would tell you for sure.

if you need further explanation, just ask...i am short on time at this moment...

[jpg7n16]

When I leave the state's employ I should be receiving a payout for my unused leave that is worth 4-5k. I was planning on rolling over the 457 deferred comp amount I have with the state to a Roth IRA & then using the leave payout to go ahead and fully fund my Roth IRA for 2013

With the small balance that you're considering converting, and your low tax bracket, I'd def convert to the Roth. You have ample cash on hand to do that.

As far as using the unused leave payout for 2013, what goal do you want to use the funds for?

It seems like retirement is your main focus, so based on that, I'd fund your 2012 Roth IRA first if you haven't already. You have until April 15th to fund an IRA for 2012 ($5k max), so I'd start there before doing 2013.

If you instead want to use the funds for college savings, or a future home purchase, I'd suggest a different account.

How does all of this sound? Should I be contributing more or less, split investments between 457/Roth IRA? How would you go about it? Thanks in advance!

Do you get any matching on the 457? If so, do enough to get full matching 1st. After that, at your bracket and income, I'd be doing any retirement savings to the Roth.