Author Topic: 457 Plan, Downsides?  (Read 5748 times)

snshijuptr

  • Stubble
  • **
  • Posts: 147
  • Age: 33
  • Location: Southern California
457 Plan, Downsides?
« on: June 23, 2015, 02:24:34 PM »
Are there any downsides to a 457 plan? My husband is changing jobs, moving to a new school district. I'm not sure yet if they offer a 457, but my understanding is that for early retirement they rock. They are basically a 401k/403b without an early withdrawal penalty. I read something about not being able to roll them over, but that was from 2000. Any info on 457 plans vs 401k/403b would be appreciated.

MustardTiger

  • Stubble
  • **
  • Posts: 180
Re: 457 Plan, Downsides?
« Reply #1 on: June 23, 2015, 02:28:32 PM »
When looking into mine, it seemed as though the fees were quite a bit higher.  At this point im just doing the 403b because of that.

MDM

  • Walrus Stache
  • *******
  • Posts: 9686
Re: 457 Plan, Downsides?
« Reply #2 on: June 23, 2015, 02:30:12 PM »
You could google   457 plans vs 401k/403b  for good general information.

As MustardTiger implies, you should check specific details for your plan.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3532
  • Age: 37
Re: 457 Plan, Downsides?
« Reply #3 on: June 23, 2015, 02:33:26 PM »
Yep.  Governmental 457 is the bees knees.  It is not that you can't rollover a 457.  It is that if you roll it into an IRA, it losses it's 457 awesomeness - early withdrawal penalty comes back into play.  I believe you can roll a 457 into another 457.  Assuming of course, that you have decent options in the 457.

The other upside is the 457 gives you a separate 18K bucket to fill with pre-tax money.  You can defer 18K into the 403b, and another 18K into the 457.

http://rootofgood.com/make-six-figure-income-pay-no-tax/ shows how big of a deal this can be.

forummm

  • Walrus Stache
  • *******
  • Posts: 7396
  • Senior Mustachian
Re: 457 Plan, Downsides?
« Reply #4 on: June 23, 2015, 02:33:57 PM »
457 plans are great. I'm pretty sure you can roll them over to a traditional IRA after you have separated from the employer. Some employers have better or worse options for 457's then for 403b's. You'll have to check.

And usually you can contribute the max to both--e.g. $18k to 457 AND $18k to 403b. Double the benefit of just one account!

jfer_rose

  • Bristles
  • ***
  • Posts: 455
  • Age: 41
  • Location: Urban Dweller
Re: 457 Plan, Downsides?
« Reply #5 on: June 23, 2015, 02:36:57 PM »
I don't think high fees are a general feature of 457 plans. Just like any retirement savings vehicle, fees will vary depending on who administers your employer's plan. I have a 457 plan with very reasonable fees.

If you work for a stable employer (government or similar), I see no downside to 457 plans and only upsides. They are a perfect investment vehicle for early retirees.

Jeremy E.

  • Handlebar Stache
  • *****
  • Posts: 1946
  • Location: Lewiston, ID
Re: 457 Plan, Downsides?
« Reply #6 on: June 23, 2015, 04:23:52 PM »
For me, the biggest downside of a 457 plan is that my employer doesn't offer it :(
They Rock! They are a 401k without the 10% early withdrawal penalty, and increase the maximum amount you can put into taxable accounts every year! Good Luck!

arebelspy

  • Administrator
  • Senior Mustachian
  • *****
  • Posts: 28058
  • Age: -999
  • Location: Seattle, WA
Re: 457 Plan, Downsides?
« Reply #7 on: June 23, 2015, 05:22:12 PM »
Yeah they're great, assuming your employer won't go BK, at which point 457s are at risk because they aren't your assets yet. If it's government, you probably don't have to worry.
We are two former teachers who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and are now settled with two kids.
If you want to know more about us, or how we did that, or see lots of pictures, this Business Insider profile tells our story pretty well.
We (rarely) blog at AdventuringAlong.com. Check out our Now page to see what we're up to currently.

snshijuptr

  • Stubble
  • **
  • Posts: 147
  • Age: 33
  • Location: Southern California
Re: 457 Plan, Downsides?
« Reply #8 on: June 24, 2015, 08:24:19 AM »
Thanks everyone. As I said I tried Googling the difference and everything was about 15 years old and not detailed. There was a lot of generalization based on specific employer plans.

Good to know about the BK issue.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3532
  • Age: 37
Re: 457 Plan, Downsides?
« Reply #9 on: June 24, 2015, 08:40:37 AM »
Governmental 457's are held in trust.  BK is not an issue unless it is a non-governmental 457.  Since your husband works for the schools, I'd bet it is a governmental plan, but obviously do your due-diligence on this.

Jeremy E.

  • Handlebar Stache
  • *****
  • Posts: 1946
  • Location: Lewiston, ID
Re: 457 Plan, Downsides?
« Reply #10 on: June 24, 2015, 08:46:40 AM »
457 plans are great. I'm pretty sure you can roll them over to a traditional IRA after you have separated from the employer. Some employers have better or worse options for 457's then for 403b's. You'll have to check.

And usually you can contribute the max to both--e.g. $18k to 457 AND $18k to 403b. Double the benefit of just one account!
I think you are able to roll over Governmental 457 plans into a traditional IRA, but not non-governmental 457 plans

Mirwen

  • Stubble
  • **
  • Posts: 160
  • Location: Las Vegas
Re: 457 Plan, Downsides?
« Reply #11 on: June 24, 2015, 09:48:34 AM »
The downsides to my state's 457 is that you absolutely cannot withdraw while you are still working for the employer, even if you've reached normal retirement age.  Also, the fund fees are much higher than other investments.  Most of mine are over 1% fees, but yours may be different.  However for early retirement, they do generally rock.  Just look at the details of your plan and understand that they are all different. Just like not all 401ks are the same.

gillstone

  • Bristles
  • ***
  • Posts: 388
  • Age: 37
  • Location: The best state in the Union (MT)
Re: 457 Plan, Downsides?
« Reply #12 on: June 24, 2015, 09:58:28 AM »
Even with fees, the 457 is still a winner for FIRE.  You get to put aside up to 18k pre-tax and once you leave the job its yours less the taxes, no vesting timeframes, no withdrawal limits, no age requirements.  Its true that you can't touch it while working, but since most worst case scenarios involve losing a job, having a 457 becomes a nice cushion in the event of unemployment.  Besides you shouldn't be touching your other retirement options while working anyways.

StacheInAFlash

  • Stubble
  • **
  • Posts: 137
  • Location: Midwest
Re: 457 Plan, Downsides?
« Reply #13 on: June 24, 2015, 11:24:12 AM »
I don't think high fees are a general feature of 457 plans. Just like any retirement savings vehicle, fees will vary depending on who administers your employer's plan. I have a 457 plan with very reasonable fees.

I second this! My 457 has several options, with fees from .05% to 1.75%, with options in Vanguard, Fidelity, Deutsche Asset, and one other. Guess which company I'm with.......

Wilson Hall

  • Stubble
  • **
  • Posts: 163
Re: 457 Plan, Downsides?
« Reply #14 on: June 24, 2015, 12:26:36 PM »
I'm putting money into both my 401b and 457 with the idea that I'll spend the 457 funds in my early-mid 50s (or whenever I separate from this job), then tap the 401b at 59.5. To be honest, I'm thinking of raising my 457 contributions and lowering those for the 401b because the fees are lower. I don't think my employer will let me put more than half my salary into deferred accounts; therefore, I can't max out both.

Wilson Hall

  • Stubble
  • **
  • Posts: 163
Re: 457 Plan, Downsides?
« Reply #15 on: June 24, 2015, 12:36:40 PM »
I'm putting money into both my 401b and 457 with the idea that I'll spend the 457 funds in my early-mid 50s (or whenever I separate from this job), then tap the 401b at 59.5. To be honest, I'm thinking of raising my 457 contributions and lowering those for the 401b because the fees are lower. I don't think my employer will let me put more than half my salary into deferred accounts; therefore, I can't max out both.

403b, not 401b. Darn lunch salad made me sleepy.

gillstone

  • Bristles
  • ***
  • Posts: 388
  • Age: 37
  • Location: The best state in the Union (MT)
Re: 457 Plan, Downsides?
« Reply #16 on: June 24, 2015, 12:37:37 PM »
One other thing to look into is that your contributions to your 403b may be restricted.  In Montana the state employee 403b only allows them to contribute 7.9% and no extra is allowed.  The 457 then becomes how you get to maximize your pre-tax options.

dandarc

  • Magnum Stache
  • ******
  • Posts: 3532
  • Age: 37
Re: 457 Plan, Downsides?
« Reply #17 on: June 24, 2015, 02:02:49 PM »
One other thing to look into is that your contributions to your 403b may be restricted.  In Montana the state employee 403b only allows them to contribute 7.9% and no extra is allowed.  The 457 then becomes how you get to maximize your pre-tax options.
It would be better if you could do both.  457 deferral limit is in addition to your 401K/403B limit.  Basically same deal in Florida - FRS is 3% with whatever they decide the match is going to be, no way to do more, but there is a 457.

Mrs.LC

  • Stubble
  • **
  • Posts: 226
    • Loose Change Living
Re: 457 Plan, Downsides?
« Reply #18 on: June 24, 2015, 03:49:48 PM »
457's are the bomb for sure.  Most plans have multiple investment options available to choose from just like a 401K does.  The ability to withdraw money without a huge hassle and penalties is the selling point for them.  Both Mr. LC and I maxed ours the six years we worked for the local government.  Doing so lowered our taxable income and subsequent tax owed saving us a ton of money and gave us a pot of money to draw from during early retirement if needed.  A win-win situation.