Does a 457B make sense with LUMP SUM withdrawals?

[BDJ_AG]

My wife is a speech pathologist for a school district in TX and as such has access to both a 403B and 457B. We have been doing the 403B, and I have avoided the 457B due to the higher fees, but I am starting to re-think that approach.

My question has a few layers so I will try to late it out as succinctly as possible:
1. If the only options for withdrawal upon separation are lump sum or rollover, does that negate the benefit of the 457B or is it still worth it to get the tax savings and roll to an IRA? In other words we conceivably can't use this money to fund any gap years.
2. Should I do the 457B, but then change either the 403b or 401k to be ROTH? Based on this years income this will be money from the 22% tax bracket (could be 24% bracket in future years if that matters).
3. Should I skip the 457B and just go with a taxable account?

457B fees & info:
TCG Advisors, LP advisory fee of .42% of account assets annually
TCG Administrators 3rd Party Administrator annual fee of $22 per year &
TCG Administrators 3rd Party Administrator annual fee of .25% of account assets Matrix Trust, Custodian/Trustee Fee of .10%
Vanguard VTSAX .04%
Total fees = .81% + $22/year

I need to call the plan administrator because the info on-line is limited, but from I can find the only options for distributions are:
- Receive a lump-sum distribution (subject to ordinary income tax)
- Rollover your account balance (i’m assuming to an IRA)
- Leave in the Plan until a future date but no later than age 70½ or retirement (i am assuming once you do pull it out you have 1 of the first two options)

Our info:
- Ages 39 & 38
- 2 kids under 5 and 1 on the way
- Net income: 230k, about $170k Gross (varies year to year based on bonuses, but typically not lower)
- We Max out 401k, 403B, HSA, FSA (dependent care), & Roth IRA’s. Both the 401k and 403B are in traditional accounts, but both employers offer ROTH versions.
- We contribute about $6k/kid to 529's
- Don’t plan to FIRE for at least another 10 years or so

Can provide detailed investment #'s if that will make a difference.

[terran]

I assume this is a governmental 457(b) since you mention a school district and since non-governmental can't be rolled over to an IRA. This is an important distinction because non-governmental plans are much less attractive given the risk of loss to employer insolvency.

1) I wouldn't let the lump sum distribution stop you. This makes the 457(b) effectively equivalent to a 403(b) with the added benefit that you can keep some of the distribution for spending in your first year(s) of retirement before rolling over to IRA without paying a 10% penalty.
2) The only thing that matters in traditional vs Roth decisions is current vs retirement marginal tax bracket. I have a hard time seeing how a mustachian will go over the 12% bracket (or 15% when taxes go back to the old brackets as scheduled in 2025) in retirement, but if you're one of those high spend mustachians then maybe. Remember to account for state taxes, especially if you plan to move to a higher/lower tax state in the future (higher in your case since you currently live in TX without a state tax).
3) Maybe, those are pretty high fees, although not totally crazy. https://www.bogleheads.org/wiki/401(k)#Expensive_or_mediocre_choices offers a framework for thinking about whether to invest in a tax advantaged account with high fees vs a taxable account.

[Psychstache]

So I have currently and had with my previous employer a 457 in Texas through TCG services. I accessed mine when we were buying our new house a couple of years ago and you do have the option of taking a disbursement that is not a full withdrawal, so you don't have to empty the account in order to access the money. What was annoying is that they by policy, at least when I did my withdrawal, automatically withhold 20% for taxes regardless of your circumstances. there's knowing because A I knew I wasn't going to owe that much in taxes on it and B just messing with your math a little bit on what you needed withdrawal.

TCG is a little behind the times and how they operate (A lot of paper forms and faxing / emailing stuff that should be automated on the website) and the fees are a little high, but as the poster above said they're not outrageous and they're a decent operator. We continue to contribute to both our 403B's and 457's.

[MrThatsDifferent]

Found 2 blogs that might help:
https://www.millionaireeducator.com/
http://millennialeducator.com/

[JSMustachian]

We also have TCG as our provider for the 457B. The 457B contributions get us under the income limit for the savers credit. That $400 tax credit makes up for the high fees for now.