Author Topic: Too many options, need help sorting it out  (Read 907 times)

Abe

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Too many options, need help sorting it out
« on: October 27, 2020, 10:50:08 PM »
Hi everyone, I have a new job and am extremely fortunate to have a lot of options to save money. It would be helpful to get your opinion on the best plan.

Account 1: Mandatory 403b with a 6.7% contribution from me and 8.5% contribution from employer. This account is maxed out automatically.

Account 2: Mandatory 457f with a 5.5% contribution from the employer and 100% joint/survivor annuity at retirement.

Account 3: Optional 457b plan, no matching. Should I max this out? Per the IRS this limit is separate from the 403b limit. I also think I can use this without penalty upon retirement, regardless of my age.

Account 4: Optional Roth 403b, no matching. My contribution already maxes out with the mandatory 403b, so I don't think I'd qualify.

Looking through all this, I think the best of the two optional accounts is clearly the 457b. Is there something I'm missing?

zolotiyeruki

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Re: Too many options, need help sorting it out
« Reply #1 on: October 28, 2020, 08:59:20 AM »
So, let me get this straight:  You *have* to pick either Account 1 or Account 2, and you can optionally add Account 3 and/or 4?

What is the vesting schedule like for the 457f?  If you hit your magic number quickly, how much do you forfeit?

That's a pretty sweet employer match on the 403b, too.

JGS1980

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Re: Too many options, need help sorting it out
« Reply #2 on: October 28, 2020, 12:42:10 PM »
Hi Abe,

Assuming you are going for FIRE and won't be employed at this place for 10+ years, often times the Annuity benefit is not the best for your.

I'd go for Mandatory 403B and Max out the Optional 457B plan as well as the 457B would save you tons in taxes overtime.

JGS

Abe

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Re: Too many options, need help sorting it out
« Reply #3 on: October 28, 2020, 07:00:47 PM »
Account 1 and 2 are mandatory, just added those to give the whole picture.

The vesting is 5 years for account 2 (the 457f). Average employment for people in my position at this institution is about 20 years, which is what I anticipate (not necessarily full time for 20 years, though). The amount contributed to this account is small compared to Account 1, which is maxed from both mine and the employer's side.

I can choose Account 3 and/or 4. Thanks for your advice, I'll go with the optional 457b.

bacchi

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Re: Too many options, need help sorting it out
« Reply #4 on: October 28, 2020, 07:10:25 PM »
Be aware that the 457 isn't protected from bankruptcy unless it's state government operated.

But I'd pick it. It's a great plan for RE people.
« Last Edit: October 28, 2020, 07:12:26 PM by bacchi »

terran

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Re: Too many options, need help sorting it out
« Reply #5 on: October 28, 2020, 09:38:08 PM »
Is your employer a government agency like a school or university? If so definitely put money in the 457(b) unless the investment options or fees are truly terrible. If not, the plan is subject to the creditors of the institution so I would be inclined not to do it, especially if it's a university and/or hospital as we're in strange times for both those institution types right now. If the institution is financially strong enough, you'll be leaving soon enough, and your potential tax savings (difference between current marginal rate and marginal rate when you leave and withdraw) is large enough then I might consider a non-governmental 457(b), but I'd be much less inclined to. The limit is separate from the 403(b).

I'm pretty sure the mandatory 403(b) contribution doesn't count towards the employee salary deferral limit ($19.5k in 2020 and 2021). This might not be universal, but I know it's true of my wife's plan. Or do you mean your mandatory contribution plus your employer contribution hits the overall limit ($57k in 2020, $58k in 2021)?

Abe

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Re: Too many options, need help sorting it out
« Reply #6 on: October 28, 2020, 10:26:47 PM »
Thanks for all the comments. My employer is a state university. The manager is Fidelity and they have normal index fund options. The contribution limit for the 403b is the overall $57 (soon $58k) limit. So I think overall I have this plan:

Mandatory 403b - $58k (me + employer)
Optional 457b - $19.5k (me)
Mandatory 457f - $22k (employer)

lhamo

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Re: Too many options, need help sorting it out
« Reply #7 on: October 29, 2020, 09:12:00 AM »
457bs are great for those planning early retirement -- except the funds will be taxable when you withdraw them. 

I had a Roth 403b at my last job.  I put about 113k into it over 7 years -- and it is now worth close to 300k.  Pretty nice to have that tax-free stash growing.

Abe

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Re: Too many options, need help sorting it out
« Reply #8 on: October 29, 2020, 07:48:06 PM »
Good point. Iíll have to see if thereís an after-tax option for the optional 457.

zolotiyeruki

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Re: Too many options, need help sorting it out
« Reply #9 on: October 29, 2020, 08:37:09 PM »
Keep in mind that if you want to retire before 59.5, you'll need enough Roth contributions and taxable accounts to cover your first five years' of expenses while you build your Roth Pipeline.  With the large amounts you're plowing into the mandatory tax-deferred accounts, I'd suggest you invest any remaining leftover funds into a taxable account.