Utilizing a 457 Deferred Comp plan and Roth IRA to invest

9 Replies

I am aware of people utilizing self directed IRA's to invest. I have read here that people use their 401k's also. I personally know of someone who uses his pension plan from a private company to invest with. Here are my questions.

1. Am I able to use money from a 457 deferred comp plan and/or Roth IRA to invest?

2.  If so, what is needed to structure this?

Obviously I know that all money borrowed needs to go back into the plan, and I am assuming that the return on the money would also need to go back into the plans.  

3.  With regard to the 457, I am assuming that taxes would be paid on the money when I ultimately withdraw in retirement as would normally be the case if I were not touching it until retirement.  

4. With the Roth IRA, I would be looking to redeposit my returns. Given the fact that Roth money was invested post tax annually when I qualified, would I need to pay taxes on this money upon the sale of the property, or would this money grow tax free as would all other gains normally made in the Roth outside of a real estate transaction?

@Brandon Ingegneri ,

You can setup self-directed IRA and then invest in real estate (or any other alternative investments). Here are few things to be aware of:

  • You (personally) do not borrow from your retirement account, your retirement accounts makes the investment. Think of it as your IRA buying stocks, but in this instance your IRA buys real property
  • You can't combine your 457, which is pre-tax, with your Roth IRA, which is post-tax
  • Just like with any other retirement account you will be taxed at the time of distribution on tax-deferred accounts, or pull distributions tax-free from Roth IRA
  • When you sell property (or any other investment) inside of a qualified account (Traditional or Roth IRA) there are no taxes, you are investing inside of a tax-deferred vehicle

Hope this helps! 

Thank you @Dmitriy Fomichenko . Point of clarification. Would I be able to convert my 457 to a self directed IRA, excluding my Roth, or would I be unable to utilize the funds in the 457 entirely? From what I gathered, it sounds like the self directed IRA is the only course of action if I were looking to utilize this money. Please correct me if I misunderstood.

If you have a 457 plan with past employer - you can roll it over into self-directed IRA. If it is with your current employer - probably not, but you should direct this question to your employer.

Thank you again @Dmitriy Fomichenko . I will lay the field for you. For years, I contributed to a Roth IRA independently. I am no longer under the income threshold to continue to contribute. I currently max out an active 457 plan each year and will continue to do so until I retire in 2026. In 2026, I will begin collecting a pension. I would be interested in establishing other investment vehicles independently through my own business, separate and apart from my current employer.

That's a good plan Brandon. You probably won't be able to touch your 457 money until 2026. If your business is profitable you have the potential of contributing up to $55,000 per year with Solo 401k plan. 

@Brandon Ingegneri

You should be able to continue to put money into your Roth IRA by way of what's known as a "backdoor contribution", where you make an after-tax contribution (no deduction) to a traditional IRA and then roll it into your Roth IRA, without paying taxes. This ability is not capped by income. But beware, if you have any traditional IRAs with pre-tax dollars in them, that mucks up this strategy and is a bit more complicated. As always, check with your tax adviser.

@Brandon Ingegneri

In addition to the information above about self-directed IRAs, I would add that a Solo 401k might fit into the mix if you're self-employed. While you wouldn't be able to transfer existing Roth IRA assets into the Solo 401k, you could utilize some of the other benefits the plan offers over an IRA. If you favor Roth funds, one strategy to consider is the mega backdoor Roth that allows you to get up to $55,000 per year into Roth accounts.

@Brandon Ingegneri

Provided you are no longer working for the government, you may be able to transfer your 457 to self-directed IRA. Note that most but not all 457 government plans can be transferred to an IRA. You will want to check with your 457 administrator to confirm.

For example, a Tax-Exempt 457(b) plan–this type cannotbe transferred to a solo 401k or an IRA.