April 15th, 2006

buzzed, B&W


So, I saw a presentation about retirement the other day, and putting money into a 457 Deferred Comp. I was thinking does it make more sense to put money into the 457 or into a Roth. The main difference would be that the 457 doesn't have taxes upfront, but instead you pay at the end, whereas with the Roth you only pay taxes on what you pay in the beginning.

A bit of thinking about this, and then I realized that it theoretically shouldn't make a difference - multiplication is associative. So, let's say I have principle x, that my income tax is y percent, the interest rate is z, and I'll invest for n years. With the 457 you get:
With the Roth:
Mathematically the two are the same, assuming that the interest rate and the tax rate would stay the same. There shouldn't be any difference in the interest rates, and by the time I'm withdrawing money from either of these, I'll be retired and in the low income tax bracket anyway.

Of course, psychologically a non-Roth will seem a bit tough, since the taxes you pay will be so much higher in the absolute sense . . .

On a side note I just finished my taxes . . . took me all of 15 minutes, though it did cost me $30. There were cheaper options online, but since I've used H&R Block in the past, I kept using their online service . . . so free federal, and I had to pay for filing the state return . . .