Author Topic: 401a plus 403b +/- 457?  (Read 362 times)

pegleglolita

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401a plus 403b +/- 457?
« on: February 11, 2019, 11:38:42 AM »
I work for a large US public university that has a mandatory teacher retirement plan (I believe classified as a 401a/defined benefit plan(?).  I know I can never actually get the university's contributions if I leave).  7% of gross from me, 13% from university.  They offer a paltry match in a 403b ($1650 max/year), so I contribute enough to get the match.  They do offer a 457 with no match, and I'm thinking that since I can withdraw at termination of service rather than have to wait until 59 1/2, it may make sense to contribute to this.  Unfortunately, the expense ratios offered by the four authorized companies stink (0.40% is the least...I know this isn't a reason not to do it but it chaps my arse).  I make too much to get a tax benefit from a tIRA.  Should I be putting most of my extra retirement money into this 457?  I do have some emergency fund savings split between a high-yield savings account and a taxable Vanguard account. 

Sorry if this seems like an obvious question. 

dandarc

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Re: 401a plus 403b +/- 457?
« Reply #1 on: February 11, 2019, 11:53:05 AM »
I make too much to get a tax benefit from a tIRA.'
You sure about that? Salary less 7% less 19K (403B) less 19K (457B) less health insurance premiums less any HSA or FSA's you might be doing . . .

In any event, get the match in the 403B, then max the 457 (.4% is not that bad), then max the 403B, then a tIRA if it is dedctible, Roth if it isn't, then do a mega-backdoor Roth if your 403B supports, then if you still have money availabe, invest in taxable.

pegleglolita

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Re: 401a plus 403b +/- 457?
« Reply #2 on: February 11, 2019, 03:04:50 PM »
I make too much to get a tax benefit from a tIRA.'
You sure about that? Salary less 7% less 19K (403B) less 19K (457B) less health insurance premiums less any HSA or FSA's you might be doing . . .

In any event, get the match in the 403B, then max the 457 (.4% is not that bad), then max the 403B, then a tIRA if it is dedctible, Roth if it isn't, then do a mega-backdoor Roth if your 403B supports, then if you still have money availabe, invest in taxable.

Actually, I forgot that my husband has no plan at his new job and so he should be able to deduct the full $6K in addition to everything else.  Wish I was at the level of maxing everything, but we'll get there! 

desertadapted

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Re: 401a plus 403b +/- 457?
« Reply #3 on: February 11, 2019, 04:37:12 PM »
You might want to go back to the well on your 401(a).  I have a 401(a) and 457(b) through work.  There is some matching for the 401(a).  I'm always ready to learn new things, but I believe the 401(a) is a "defined contribution" plan, not a "defined benefit" plan.  Unless your employer has a strange and specific vesting requirement, their contributions to your 401(a) should be yours as soon as made. No give-backsies.   The only limits on your ability to withdraw from the 401(a) for your own use come from the standard age/tax penalty limits on 401(a) withdrawals (same as 401(k)).  So I'm not sure about "never actually getting" the employer contributions if you leave.

A 457(b) is a fantastic plan.  You are allowed access to it upon separation from employment without penalty, and it can be an amazing tool in your FIRE toolbox.  Between my contribution to my 401(a), and maxing the 457(b), we are reducing household taxable income by about $30,000 annually, which on our income makes us eligible for a Roth.  With the exception of contributing to the 403(b) up the employer match, and knowing nothing else about your situation, I think the 457(b) is an excellent idea, particularly if you want to retire well before 59.5.   The only thing I would caution is that I believe that the 401(a) and 403(b) have matching caps (e.g., you can max a 401 and a 457, but not also a 403), so you're going to want to investigate further.   Assuming your 401(a) maxes at the $19,000 cap in 2019, and the 403(b) with match is a bit over $3,000, I believe you're going to have to limit your 457(b) contribution.   Good luck!

dandarc

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Re: 401a plus 403b +/- 457?
« Reply #4 on: February 11, 2019, 06:28:06 PM »
The 401(a), 403(b), and 457(b) are all their own separate buckets Pretty good breakdown here:

https://thefinancebuff.com/401a-plan-contribution-limit.html

Standard disclaimer "assuming your plan(s) say so".

pegleglolita

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Re: 401a plus 403b +/- 457?
« Reply #5 on: February 12, 2019, 12:57:15 PM »
desertadapted, I'm guessing it's a defined benefit plan because I've been told explicitly that those contributions aren't really a "match" but an amount given to the larger TRS fund and that if I leave the only contributions I would take would be mine and a % of interest earned based on number of years of service.  Seems shitty, but I guess it's their system and once it starts paying out at age 60 it continues for life so in the end it's a probably a sweet deal...

Rural

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Re: 401a plus 403b +/- 457?
« Reply #6 on: February 12, 2019, 06:22:35 PM »
Your system sounds very similar to mine, also public university. Defined benefit pension first (not that it's optional), with a match from the employer. I can't get the employer contribution if I leave before vesting, but I do get a pension starting at 60 as long as I work there ten years to vest. It's smaller if I leave at 10 years (that's this coming October for me, not that I'm counting...), but it pays out for life.


After that, I go to HSA next, and if you have that for an option, it's generally a great one. You can invest, and you can move the funds to a custodian with better fees if you want. You need a qualifying health plan. My employer does a small match on that.


Then I go 457, but there's no match for either the 457 or the 403b for me - you should get the match first. Then think carefully about the 457 - it's hard to beat the advantages of a governmental 457 (HSA does, but nothing else).

pegleglolita

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Re: 401a plus 403b +/- 457?
« Reply #7 on: February 15, 2019, 04:06:31 PM »
Whoa...UPDATE!  I just found out that my 403b has penalty-free withdrawal at 55 if separation of service?!  I will be working until at least 55 so maybe I don't need a separate fund after all?  Any other benefit to the 457 (same funds available) other than the early withdrawal one?

CoffeeR

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Re: 401a plus 403b +/- 457?
« Reply #8 on: February 15, 2019, 05:27:14 PM »
Whoa...UPDATE!  I just found out that my 403b has penalty-free withdrawal at 55 if separation of service?!  I will be working until at least 55 so maybe I don't need a separate fund after all?  Any other benefit to the 457 (same funds available) other than the early withdrawal one?
It it more likely that the 403b has penalty free withdrawals if you separate the calendar year you turn 55, so separation at age 54 as long it is after Jan 1 would work (eg. google "rule of 55"). Also, you may not be able to roll over your 403b into another plan if you want to withdraw penalty free (not a problem in my case, since I'm at Fidelity with good funds), but keep that in mind. Finally, some retirement plans have onerous withdrawal rules that force you to distribute everything or nothing if you make use of the rule-of-55. Research your plan and check the plan documents.

The 457 allows for a 3 year catch contribution prior to retirement of double the regular limit if you are age 50 or above. So for 2019 you could contribute $38,000 to a 457. This may not matter depending on how much you wish to contribute, but it is useful is some cases.
« Last Edit: February 15, 2019, 05:36:18 PM by CoffeeR »

dandarc

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Re: 401a plus 403b +/- 457?
« Reply #9 on: February 17, 2019, 08:47:54 AM »
To add to what CoffeeR said - if you're going to be working until at least 55, then there is no reason at all to worry about early withdrawal penalties - what to do now is simple - max out tax advantaged space before putting a penny into taxable investments.

Push comes to shove, you just do a SEPP (72t) for 5 years and then you're 60 or older. SEPP isn't a great option if you retire at 30, since it goes until the later of age 59.5 or 5 years, but if I was planning on retiring at 55, that would be my first choice for bridging the gap.

CoffeeR

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Re: 401a plus 403b +/- 457?
« Reply #10 on: February 17, 2019, 10:10:20 AM »
Any other benefit to the 457 (same funds available) other than the early withdrawal one?
Also, keep in mind the 403b and 457b maximum contribution limits are separate. So, if you max your 403b contribution you can still contribute to the 457b (and vice versa). The choice between 403b and 457b if you make use of the rule-of-55 depends on factors such as better withdrawal flexibility of the 457b (their may be none), better investment choices (sometimes the 403b has good options and the 457b does not or vice versa) and, finally, higher contribution limits. Having said that, in your case 403b vs 457b may not matter much.