Author Topic: 457(b) plans?  (Read 4024 times)

Peanut Butter

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457(b) plans?
« on: September 08, 2013, 02:41:19 AM »
I'm working on saving and investing more of my money, I currently have 12% of each paycheck pre-tax going into my workplace plans. 10% is in the 403b plan (the amount to get the full match) and 2% to the 457b. Is the 457b worth it? It makes me nervous because in the plan technically remains the property of the company and can be seized by creditors in the event of bankruptcy. Should I keep investing in it or use my money after-tax for other investments/savings?

TheDude

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Re: 457(b) plans?
« Reply #1 on: September 08, 2013, 09:23:24 AM »
Do you work for a charitable organization or the government?

Peanut Butter

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Re: 457(b) plans?
« Reply #2 on: September 08, 2013, 10:16:28 AM »
Do you work for a charitable organization or the government?

An allegedly non-profit hospital.

fiveoclockshadow

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Re: 457(b) plans?
« Reply #3 on: September 08, 2013, 01:12:38 PM »
In your case then besides the credit risk issue there is the lack of portability issue to - you can't roll-over non-government 457b accounts into something more sensible when you leave.  Unless you have access to another non-government 457b plan.  I think that makes it your tax sheltered vehicle of last resort.  I presume you are filling up your IRA already as well?  If you have kids who will eventually go to college a 529 plan is another alternative to expand your tax sheltered space.  Depending on your health care situation HSA is another option as well.

After filling everything else up the choice between 2% to 457b and 2% to taxable seems a difficult choice.  However, here are some things to consider:

- The less faith you have in the 457b plan (high fees, bad fund selection) and the hosting company (likelihood of lasting until you can withdraw) the more you should consider going taxable instead.

- Consider your long term tax burden.  For a "true" mustachian the income in retirement could be so low that the advantage of tax sheltering in the long term is low.  You might make a bunch of money during the accumulation phase and be in a high tax bracket but a sensible taxable investment choice (total market giving only 2% qualified dividends) will only see a little bit of tax drag and only for that period of accumulation.  Once in draw down your tax rate will be quite low (if you are a real low spender even 0% capital gains tax rates) and the advantage of tax sheltering might be so marginal that the risk of a 457b isn't worth it.

Last, consider I know very little about 457b plans beyond their theoretical risk.  I really don't know if their credit exposure is a "real" risk or an "imaginary" risk.  The above discussion presumes it is "real".  It would be interesting to know how many 457b plans actually "fail".

arebelspy

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Re: 457(b) plans?
« Reply #4 on: September 08, 2013, 01:16:51 PM »
Read this:
http://www.mrmoneymustache.com/forum/investor-alley/457b-plan/

It should answer all of your questions.

IMO a 457b is WAY better than a 403b, but there is the exception where the nonprofit is on shaky financial grounds and may go insolvent.

If I were you, assuming the hospital is doing okay, I'd be maxing my 457b.

Read that thread, and post here again with any questions that didn't answer.
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Abe

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Re: 457(b) plans?
« Reply #5 on: September 08, 2013, 09:03:55 PM »
Hello everyone, I read the thread referenced by arebelspy but had a further question. If someone has both a 401k and a 457b plan, can they contribute $17.5k to each one and deduct all of that, or is the employee contribution limit including all plans (like with IRAs)? Thanks!

Peanut Butter

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Re: 457(b) plans?
« Reply #6 on: September 08, 2013, 11:08:48 PM »
Read this:
http://www.mrmoneymustache.com/forum/investor-alley/457b-plan/

It should answer all of your questions.

IMO a 457b is WAY better than a 403b, but there is the exception where the nonprofit is on shaky financial grounds and may go insolvent.

If I were you, assuming the hospital is doing okay, I'd be maxing my 457b.

Read that thread, and post here again with any questions that didn't answer.

Thanks for that! It answered a lot of questions.

I don't really know how the hospital is doing financially. In the past two years they've been buying up lots of smaller healthcare systems, doing major reorganizations, etc, at the admin level. (I'm on the patient care side.) Also, I don't really feel like I can trust anything the management says to us, but I don't have any solid reason why.

rtrnow

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Re: 457(b) plans?
« Reply #7 on: September 09, 2013, 07:51:53 AM »
Hello everyone, I read the thread referenced by arebelspy but had a further question. If someone has both a 401k and a 457b plan, can they contribute $17.5k to each one and deduct all of that, or is the employee contribution limit including all plans (like with IRAs)? Thanks!

I work for state govt and have a 401h, 403b, and 457b plan. For me I could (theoretically if I had the money) max everything. 17.5K 403b, 17.5 457b and for me the 401 is a defined amount I can't change. I currently max the 457 for reasons mentioned above and put extra towards the 403.