Author Topic: 457, 403b, stocks, confusion  (Read 4654 times)

wileyish

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457, 403b, stocks, confusion
« on: May 15, 2014, 10:04:07 PM »
Holy Macaroni! Just learned that my company offers a 403b plan. This is in addition to a generous defined benefit (pension) plan, and a 457. Our HR department sucks balls when it comes to disseminating information; weíve had exactly one retirement seminar in my entire time with the organization, and that was ages ago. Though, in their defense, we are a weird little offshoot of the main organization, several hundred miles from the HQ. Just recently they overhauled their website and now we canít even log in, so I have no idea what options are available via the 403b. Letís assume that the investment options are fair for this exercise.

Current scenario:

Age: 39
Pension: 2% @ 55 up to 2.5% @ age 63*
457: Maxed out at $17,500/yr (this little guy is AWESOME. Pre-tax investing that is readily available at the time of separation from service, so rad.)
Post tax investments: $37,000/yr
Estimated available funds (excluding pension) @ age 45: $540,000 (always lived beneath my means, failed HARD at investing)

Plan: Pretire** in about 5 years with 20 years vested in the retirement system. Will need to coast for 10-18 years on the readily available funds (457 and post tax investments) until the pension kicks in.

Questions:

1. Does it make sense to take advantage of the 403b now, knowing that my taxable income will be much smaller in retirement? This would require switching up my game plan with the after tax investments as I cannot afford to do both at the current rate. And the 403b funds wouldnít be available until age 59.5 without jumping through oodles of hoops.

2. Is there a calculator out there that would help me compare the difference of post tax investments vs the 403b?

*Not paying into social security, so this will be the only defined benefit coming into play.
**There will most likely be a part time, low paying gig doing something I love in this phase.

milesdividendmd

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Re: 457, 403b, stocks, confusion
« Reply #1 on: May 15, 2014, 11:13:47 PM »
Assuming the investment options are the same, you should fill up your 403B plan even prior to filling up your 457.

A 403B is essentially a 401(k) for a nonprofit. And if your nonprofit goes belly up there is no risk for you to lose the funds inside your 401(k). In your 457 there's the chance that your funds will become available to creditors in the event of a company bankruptcy.

Finally I would absolutely Fill up all of your tax advantaged accounts prior to contributing to your taxable account. You will get a tax break right now which means that you get 100 cents of every dollar put into your account as opposed to your after-tax dollars going into your account plus you also get tax-free growth. These are huge deals I will have dramatic impacts on the size of your nest egg at retirement.

Converting your 403B and 457 to Roth IRAs after retirement tax-free may be a little bit of work but it will be well worth it

For more see here:

http://www.madfientist.com/retire-even-earlier/

And

http://www.madfientist.com/traditional-ira-vs-roth-ira/

Enjoy your tax-free growth.

Alexi



aj_yooper

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Re: 457, 403b, stocks, confusion
« Reply #2 on: May 16, 2014, 01:50:49 PM »
Since your expected pre tire income and retirement income will put you in a lower tax bracket and you are saving a Big Bunch each year, stuff it into the 403b and 457.  That should be about $35K/year in tax advantaged.  You save big on the taxes when you are retired. 

wileyish

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Re: 457, 403b, stocks, confusion
« Reply #3 on: May 17, 2014, 02:01:10 PM »
Thanks for the feedback. Those Mad Fientist articles were very enlightening.

Found this nifty calculator to help me get a sense of the numbers. The math makes sense:

https://www.gwrs.com/mpgwl/MasteryServlet

With the 403b, one cannot begin the conversion process until separating from service. So there would be a five year gap before I could access these funds, which gives me twinges of anxiety. And I would be very bitter if the IRS changed the conversion laws in a few years, forcing me to wait until 59.5 to tap into the account. But Iím going for it. The math wins.

Also, if I max out both accounts, it looks like I would bring my AGI down enough to be eligible to deduct IRA contributions. I feel like Iím going down a tax rabbit holeÖ.

SDREMNGR

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Re: 457, 403b, stocks, confusion
« Reply #4 on: May 19, 2014, 02:49:18 AM »
The pretax investing is worth too much to ignore.  You will be able to access it if in dire need, and you will be OK I'm sure if otherwise.  You've made it alive so far, I'm sure you will find work if needed or cut expenses or figure something out.  I'm with MMM when it comes to trusting my ingenuity and resourcefulness when it comes to contingency planning.  Also it seems like you will have excess money to invest in a taxable account anyhow.

NinetyFour

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Re: 457, 403b, stocks, confusion
« Reply #5 on: May 19, 2014, 06:56:53 AM »
Just chiming in to say that I also have just started taking advantage of a 403b fund.  My income is significantly higher this year than in recent years and I just don't need the $$ now.  Also, my CPA strongly suggested that I look into this.  Plus, a thread on this forum convinced me to NOT throw all my extra income at my mortgage.

I was already putting 8% (pre-tax) into TIAA, and my employer put another 11.4% into it.  But my contribution totaled only $5000 last year (and would have been maybe $7000 this year), so there is a lot more room before I reach my max of $23,000 (I'm old).  So I set up an additional annuity account at TIAA, filled out a one page form with my HR department, and now defer a good chunk of my salary each month.  I can change the amount month to month.

I love the fact that I won't pay taxes on an additional $16,000 or so.  Also, since I am not aggressively paying down my mortgage, I still get the tax benefit from the mortgage interest deduction.

ArbitraryGuy

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Re: 457, 403b, stocks, confusion
« Reply #6 on: May 19, 2014, 07:20:33 AM »
OP: do you work for a private company or a government organization (I see you don't pay Social Security -- some state employees, like me, don't.)?

A 403B is essentially a 401(k) for a nonprofit. And if your nonprofit goes belly up there is no risk for you to lose the funds inside your 401(k). In your 457 there's the chance that your funds will become available to creditors in the event of a company bankruptcy.

From what I understand, this is only applicable to private companies with 457 plans.  If you work in government, your governmental 457 plan "belongs" to you.  The major benefit of a governmental 457 versus a 403b for people contemplating early retirement is that a a governmental 457 has no penalty for withdrawals at an early age like in a 401k or 403b.

More info here:
http://www.bogleheads.org/wiki/457-b
http://www.457bwise.com/faqs/index.html

Happy Saving!
« Last Edit: May 19, 2014, 07:23:25 AM by ArbitraryGuy »

TomTX

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Re: 457, 403b, stocks, confusion
« Reply #7 on: June 08, 2014, 08:23:59 PM »
Max out the 457, max out the 403(b), and max out a Roth, every year. THEN put the rest in taxable.