457(b) fees

[tophdna]

I asked awhile back on helping an immediate family member nearing retirement to start putting what they could into their 457(b) plan at work. I was reviewing her account, and I noticed that there is a $3.99 drag, monthly, on the account as an account maintenance fee. She set up the 457(b) so that her cash flow will simply go into a mutual fund, which is Vanguard Institutional Index Instl Pl (VIIIX). She is not paying any management fees for someone else to do this for her.

I have a similar setup at my job that I'm doing, however, I live in a different state and I have a different mutual fund. I bring up myself, because I am not paying any fees at all except a quarterly "participant account maintenance" which is like $2.50.

I've attached a photo of the account maintenance fees for her 457b plan and it does inform that there will be a monthly fee dependent on how much money is in the 457b plan and it goes up with the more money you have in it.

My question is, with that kind of monthly fee, would you invest with this 457(b)? Those monthly account maintenance fee's seem high to me. Just in case the picture doesn't go through, between $1,000 and $16,000 you will be charged a $3.99 monthly fee.

[NoStacheOhio]

I mean, it's not awesome, but VIIIX is. I would probably utilize other accounts first, but I wouldn't avoid this account based on those fees.

[Xlar]

It high which definitely sucks. But when they retire or move jobs they could roll it over to somewhere with lower fees (Vanguard). So you're not stuck with the higher fees forever.

The 457 that my wife has also has high fees but the tax savings mean that we still come out a long way ahead!

[Xlar]

For the fees the worst case is that they only put in $1000 per year and pay the $47.88 in yearly fees. This is extremely high at 4.79% the first year but I would be surprised if they didn't save more than 4.79% in taxes.

If they save more than $1000 for the first year the numbers get even better :)

[DreamFIRE]

High fees????  LOL!!  I would love those extremely low account maintenance fees in my 457 plan.  The problem in this person's case is they have so little in their account.   Those would be great low fees with any reasonable balance.

The 457 plan I am in doesn't charge a dollar amount, they charge a yearly plan fee of .75% on all investment balances (all funds, not to be confused with fund expense fees.)

With your plan, it says for $64,000 or more account balance, the monthly fee is only $13.62

I have a few hundred thousand in my plan's funds, so at .75%, my yearly fee is about $2,700, which is $225 per month!  I would much rather pay $13.62.  What a deal!

A couple side notes:  My 457 plan has a fixed income option that pays a flat 3%, which does not require the participant to pay the .75% account fee on the balance in the fixed income fund.   And, my expense ratios in the mutual funds (including S&P index fund) are much higher than my Vanguard funds, in addition to the account fee, so I plan to move the mutual funds over to Vanguard with my other investments when I leave my employer.

Edit:  I hit the 0 key one too many times when I entered my balance.  Corrected now as shown.

[terran]

The 457 plan I am in doesn't charge a dollar amount, they charge a yearly plan fee of .75% on all investment balances (all funds, not to be confused with fund expense fees.)

...

I have a few hundred thousand in my plan's funds, so at .75%, my yearly fee is about $27,000, which is $2250 per month!

I think you did the math wrong there. To pay a $27,000/year fee based on a 0.75% annual fee you would need to have a $3,600,000 balance.

[DreamFIRE]

The 457 plan I am in doesn't charge a dollar amount, they charge a yearly plan fee of .75% on all investment balances (all funds, not to be confused with fund expense fees.)

...

I have a few hundred thousand in my plan's funds, so at .75%, my yearly fee is about $27,000, which is $2250 per month!

I think you did the math wrong there. To pay a $27,000/year fee based on a 0.75% annual fee you would need to have a $3,600,000 balance.

You are correct - I hit the 0 one too many times in my on-screen calculator.  Easy to miss in a hurry because it doesn't add any commas.

So, recalculated, that's $225/mo.  I'd still rather pay the $13.62, though.

[facepalm]

Typical of 457 plans, so not unexpected.  Many plans charge anywhere between 0.1% to 0.75% load per month. Mine charges 0.25%, which seems like a bit, but I get to defer 24.500 per year and save a bunch on taxes. Totally worth it.


Have you calculated what the actual fee is in terms of a percentage? They may not look so bad then.

One your friend gets a bit more money into her account the fees don't look that bad. Heck, even Vanguard charges $5  a month on their 403(b) accounts.

[Adam Zapple]

You all have made me take a look at my 457 now...not sure on the fees.  The great thing about a 457 is the ability to use the money immediately following retirement, at any age, without penalty.  This is huge for anyone who wants to retire early.  Another great benefit is that you can max out your 457 ($18500) then have an additional IRA, which you can also max.  Other retirement savings vehicles do not offer these great benefits.

[terran]

You all have made me take a look at my 457 now...not sure on the fees.  The great thing about a 457 is the ability to use the money immediately following retirement, at any age, without penalty.  This is huge for anyone who wants to retire early.  Another great benefit is that you can max out your 457 ($18500) then have an additional IRA, which you can also max.  Other retirement savings vehicles do not offer these great benefits.

Good point.

Something else worth mentioning for anyone who doesn't know is that there is one big difference between a 457 provided by a government agency and those that are not. Governmental 457s are just about the best thing ever (other than whatever fees they might have) for the reason Mr. JL outlined, but non-governmental 457s are subject to the creditors of the institution, so you want to be comfortable with the organization's long term financial health, and maxing other tax advantaged space first might be a good idea.

[DreamFIRE]

You all have made me take a look at my 457 now...not sure on the fees.  The great thing about a 457 is the ability to use the money immediately following retirement, at any age, without penalty.  This is huge for anyone who wants to retire early.

That's true, although for me, I think I'll be using my brokerage investments and Roth IRA to keep my MAGI in check for ACA until I'm in my 60's, so I likely won't take advantage of that 457B perk.  Also, if you roll the money over to an IRA, such as for lower expenses and to avoid plan management fees of a 457B, you no longer have the early access, so you will need to keep paying higher expenses/fees of a 457B to take advantage of that benefit (assuming the expenses/fees are higher, which mine are).  But yeah, at least it's an option.

Another great benefit is that you can max out your 457 ($18500) then have an additional IRA, which you can also max.  Other retirement savings vehicles do not offer these great benefits.

That one is not specific to 457B.  You can max out a traditional 401K plan and still max out a traditional (or Roth) IRA.  There is a threshold on income at which tIRA contributions won't be fully tax deductible, but that's an AGI over $101,000 for a married couple, over $63,000 for single people.  Below that AGI level, the tIRA is fully tax deductible in combination with the work retirement plan and is not unique to 457B plans.

https://www.irs.gov/retirement-plans/plan-participant-employee/2018-ira-contribution-and-deduction-limits-effect-of-modified-agi-on-deductible-contributions-if-you-are-covered-by-a-retirement-plan-at-work

There is another benefit to 457B plans that hasn't been mentioned here, which is actually the one I'm planning to take advantage of.  If your employer offers another retirement plan such as a 401K or 403B, you can contribute the maximum to both the 457B and the 401K/403B.  So for people under 50, that's a total of $37,000.  And if you're turning 50 or over, that's $49,000 combined!

https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan

From that link:

Example
You’re in a 457(b) and a 403(b) plan, and each plan allows the maximum deferrals for 2018. You may be able to defer:

    If you're under age 50: $18,500 to each plan in 2018
    If you're age 50 or older in a governmental 457(b) plan: $24,500 to each plan if both plans allow age-50 catch-ups ($6,000 additional in 2018)

[facepalm]

There is another benefit to 457B plans that hasn't been mentioned here, which is actually the one I'm planning to take advantage of.  If your employer offers another retirement plan such as a 401K or 403B, you can contribute the maximum to both the 457B and the 401K/403B.  So for people under 50, that's a total of $37,000.  And if you're turning 50 or over, that's $49,000 combined!

https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan

From that link:

Example
You’re in a 457(b) and a 403(b) plan, and each plan allows the maximum deferrals for 2018. You may be able to defer:

    If you're under age 50: $18,500 to each plan in 2018
    If you're age 50 or older in a governmental 457(b) plan: $24,500 to each plan if both plans allow age-50 catch-ups ($6,000 additional in 2018)

But things get even better: Some 457(b) plans allow a secondary catch up contribution in the last three years, where you can contribute twice the annual limit, or double your contribution from 18,500 to 37,000; Or, "the basic annual limit plus the amount of the basic limit not used in prior years." This is in addition to whatever funds you shovel into your 403(b).

There is a catch up provision for 403(b) plans as well.

Fine print: You have to talk to your plan administrator to see if your plan allows it.

And you can still put money into a Roth IRA.

I'm setting aside 49K this year, and in the three years before retirement will able to ramp it up to at least 54,500 (not including my Roth IRA).

[DreamFIRE]

There is another benefit to 457B plans that hasn't been mentioned here, which is actually the one I'm planning to take advantage of.  If your employer offers another retirement plan such as a 401K or 403B, you can contribute the maximum to both the 457B and the 401K/403B.  So for people under 50, that's a total of $37,000.  And if you're turning 50 or over, that's $49,000 combined!

https://www.irs.gov/retirement-plans/how-much-salary-can-you-defer-if-youre-eligible-for-more-than-one-retirement-plan

From that link:

Example
You’re in a 457(b) and a 403(b) plan, and each plan allows the maximum deferrals for 2018. You may be able to defer:

    If you're under age 50: $18,500 to each plan in 2018
    If you're age 50 or older in a governmental 457(b) plan: $24,500 to each plan if both plans allow age-50 catch-ups ($6,000 additional in 2018)

But things get even better: Some 457(b) plans allow a secondary catch up contribution in the last three years, where you can contribute twice the annual limit, or double your contribution from 18,500 to 37,000; Or, "the basic annual limit plus the amount of the basic limit not used in prior years." This is in addition to whatever funds you shovel into your 403(b).

Indeed.  I had spoken with my HR staff about this a bit when I scheduled my meeting with the plan manager.  But they thought you had to be within 3 years of regular retirement age for our plan, so I would be well short of that age.

But, since I can use the $49,000 amount for 50+, that in combination with my $12,000 standard deduction is enough to get me to the 12% marginal tax bracket, which is as much as I want.   And this should be my last year where it matters.

[DreamFIRE]

This is interesting.  I had checked my plans' website and didn't see anything about the administration fee, but documentation I've received in the past showed .75%.   I still have a plan book from 2009 that say that.  So I asked the plan provider who regularly comes to our company to meet with employees what it is now, and she told me .75%.  I had no reason to doubt her since that's what it had been the last time I read anything official.  Well, I was on the plan website yesterday, and I actually came across a pdf file that when I opened it to read it, I found it had info specific to my company, and it specifically stated that there was a .38% administrative fee for all mutual funds.  What appeared to be date code made it look like a Jan 2017 document.  I got out my last quartarly statement and did some math with the admin fees listed against balance and multiplied by 4, and it indeed came out to about .38%.  How would she not know what?

I don't think I was ever told ours was a government 457, but due to some characteristics of the plan, I know it is a government plan.  Anyway, it's good to see they lowered the administration fee again.  The lowest cost S&P index fund has a .5% E/R.  And as mentioned, the fixed fund has no applicable E/R or administration fee and is guaranteed 3% interest.

[Adam Zapple]

Checked my administration fee and it is .10%.  I was happy to see it wasn't as high as others mentioned.