401a, 403b or 457?

[darkhorse]

Hey,

My wife has the option to invest in her employer's 401a, 403b or 457 plans. I've done a bit a research but it seems like there's several camps here for 457 and not-457. Through my 401k and our IRAs, we try to follow a 3-fund portfolio strategy total index stock, total bond and international, in roughly this ratio 70%/10%/20%.

For what it's worth, each plan noted above has the following index options. These don't particular align neatly into our simple portfolio strategy, but they're still pretty good:

SPTN 500 INDEX INST (FXSIX)
VANG MIDCAP IDX INST (VMCIX)
VANG SM CAP IDX INST (VSCIX)
VANG TOT INTL STK IS (VTSNX)
VANG TOT WLD STK INV (VTWSX)
VANG TOT BD MKT INST (VBTIX)

Look forward to your opinions on 401a vs 403b vs 457b. Thanks!

[naners]

Are you sure you can't do all three? I can invest to the max in my 457 and 403, 401 is where my mandatory contributions go.

[maizefolk]

Are you sure you can't do all three? I can invest to the max in my 457 and 403, 401 is where my mandatory contributions go.

This is the situation at my day job as well. (Can max out a 457 + a 403b plus the 401a receives mandatory contributions and employer matches.)

[desertadapted]

If you don't have the resources to max all three, I'd suggest reading more about 457's.  They're fantastic and are built for early retirement.  Based on that, I'd choose 457  over 403 (with 401 being mandatory).  But I echo the other comments.  It's a great feeling if you can (and it may drop your income down low enough that you can do his/hers Roth-IRA's as well).   

[seattlecyclone]

The 457 is great because there's no 10% early withdrawal tax if you take the money out before you turn 60. Take advantage of any matching in the 403(b) or 401(a) first, but then go with the 457.

[Secretly Saving]

One more vote for 457.  Of course, that is assuming that there are good funds offered in the plan that have low fees!

[KCM5]

The caveat to the 457 is that if it is a private company, the 457 belongs to the company until you sever employment. Public 457s are protected. If your wife does work for a private company, you should weigh the risks about the stability of the company.

I work for a state government and have a 457. It's amazing. No 403(b) though - so I can only put away $18000, not $36,000 :(

[PhysicianOnFIRE]

Be sure she contributes enough to get any available company match, which would typically match the 403(b) contributions. The match might go into the 401(a). A 457(b) (deferred compensation) doesn't normally have any match.

The 457(b) has the benefits mentioned above, and the drawback is the small possibility that you could lose it if your employer goes belly up. If she can afford it, I'd max all available space in the retirement accounts.

[Gibbelstein]

The 457 is great because there's no 10% early withdrawal tax if you take the money out before you turn 60. Take advantage of any matching in the 403(b) or 401(a) first, but then go with the 457.

I think it is worth noting that in order to avoid the penalty, you MUST separate from your employer.  As far as I have read/been told, this would exclude the possibility of dropping down to part time, etc. to supplement, which I think is common in some fields.  Personally, I went with a 457 because when I leave early I want to LEAVE.  But, this might give some pause.  Please, someone correct me if I have misinterpreted.

In terms of my opinion: the ability to have access to it at whatever age I want to retire was what made me go with it.  But I am considering adding a 403b as money becomes available.

Good luck!
Chris

[seattlecyclone]

You generally can't withdraw 403(b) funds prior to separating from your employer either. Seems like the 457(b) would then be strictly better, assuming the same fund options, account fees, etc.

[darkhorse]

Thanks for all the feedback and recommendations. None of these accounts have an employer match. These are offered above and beyond the employer's IAP retirement account and company pension. The IAP is compulsory for employees and requires a 6% contribution. There's an employer contribution but their website has no detail whatsoever.

I should have mentioned that we're not nearly as badass as most of you in these forums. We'll have to settle for one of these choices at the moment, as we need to continue to make lifestyle adjustments so we can start maxing our retirement accounts. It's been a rather slow process but we continue to make improvements. Will save that for another post or case study though.

It wasn't clear to me if the 457 was the more risky option or not. Knowing that there are protections in place for 457s sponsored by public institutions is great to know. Her employer is a public university/hospital.

I have read that pulling money out of a 457 is difficult or in the case of a loan, impossible. The only scenario where this could be at play is a very short term loan from a retirement account to make a home move, then pay back the loan with the sale of our current home. We have a lot of home equity and no cash, so we would need to pull some different levers in order to come up with a down payment. We do have my 401k that could be used for this purpose though.