Where to invest with multiple retirement account options?

[wange062]

I have made my emergency fund goal (~10 months expenses, estimated high), and am wanting to invest what I was saving to build the e-fund. 6% of my income is going into my work's retirement account pre-tax, and they match 6.84%. I am not able to contribute more than 6% to that account. My employer does offer a number of supplemental accounts, and I have about $2,300 of take home pay left over after expenses that I would like to invest. I have also considered taking 6k of my e-fund and dumping it into a roth IRA. Below is a list of the accounts I am considering. I would love thoughts on which ones to focus on.

403(b) - can contribute roth or traditional (max independent of 457(b) contributions)

Employer level 457(b) Retirement Program - can contribute roth or traditional

State level 457(b) Deferred Compensation Plan - can contribute roth or traditional

State level 401(k) - can contribute roth or traditional

Roth IRA

Taxable brokerage

Down payment/other cash savings - (already saved closed to goal here)

I am early in my career, and looking to buy a home in the next year or so, so would also feel better if I had the option to withdraw some contributions early, penalty free. This would be to use as a back-up to my e-fund. My work is grant-funded and not always guaranteed.

[yachi]

In case you haven't seen it yet, there's a good thread on investment order here: https://forum.mrmoneymustache.com/investor-alley/investment-order/

I'm a fan of keeping emergency funds in Roth IRAs.  If you start one now, you can fill up 2020's $6,000 limit and put in another $6,000 to fill up 2021's limit.

[simonsez]

Work's retirement pre-tax account is the 403b or the state level 401k or something different?  Whatever the case since you have access to both a 403b and 401k, getting to a total of 19.5k from your contributions shouldn't be a problem even if limited to 6% on one vehicle.

Ignoring the 6% only contribution issue, of the 403b, 401k - I would go with index funds in whichever one has lower fees (accounting for any employer matching, of course) since these are not independent of each other when it comes to the IRS limit.

Similarly in the 457 options, check out the fees.  If your employer is stable and the fees are competitive with the 403b, 401k - you might decide to fill up this bucket first (if filling both it doesn't matter) due to easier access.

Since you want to purchase a house, a Roth IRA will be a good (assuming your income allows you to make contributions) vehicle since you can withdraw the contributions.  Even if you don't touch your Roth for a down payment, still great to have.

The investment order is a great place to start but the end result of finding your personal optimal order will vary greatly based on your situation (fees, income, etc.).  But probably better to fill up tax-advantaged space as much as possible before funneling money toward a taxable account.  Also remember there are various ways to touch your money prior to age 59.5 if you need to.

Lastly, read the fine print for your plans.  Some 457 and 403b plans have additional catch-up provisions and not just for those 50+.  This probably doesn't apply if early in your career but never a bad thing to know the ins and outs of your available plans.

[wange062]

Thank you both! The mandatory pre-tax retirement account is a 401(a), and the limit is not included with the limit on the 403(b)/401(k) or on the 457(b). I'm thinking I will max the Roth IRA, and contribute any extra to one of these supplemental accounts. I'll look into the investment options, fees, and withdrawal policies to make my decision there. I didn't realize that you could still contribute to 2020's IRA limit, so I will definitely do that.

[simonsez]

Thank you both! The mandatory pre-tax retirement account is a 401(a), and the limit is not included with the limit on the 403(b)/401(k) or on the 457(b). I'm thinking I will max the Roth IRA, and contribute any extra to one of these supplemental accounts. I'll look into the investment options, fees, and withdrawal policies to make my decision there. I didn't realize that you could still contribute to 2020's IRA limit, so I will definitely do that.

Ah, a 401a, gotcha!  My buddy has access to one as a city employee - some craziness where he gets a guaranteed 7.25% return yearly but can only contribute some low % or $ amount, I can't recall.

You have up until April 15 for how to characterize your Roth IRA contributions as 2020 or 2021.  Last year it was temporarily extended 90 days (July 15) to remain in lockstep with the federal filing date due to covid but I wouldn't wager that happening again.