403b & 457!? At the same time?

[coldestcat]

I feel like im at the point in my FI journey where I am no longer just reading threads and blogs but now doing research on my own which seems like the easiest time to make mistakes, so I want to try and stop that.

I was looking up the difference between the 403b and the 457 and saw a few sites that said some places offer both, like mine. From my FI perspective it seems like another place to MAX so why not. (I am not currently able to max any of my accounts but my wife is graduating college soon so her job should provide more income to allow us to start maxing an account or two.) I just want to make sure there is something I am not missing, or is it because it is rare that a company/school district would offer both accounts that I just haven't read anything about it here.

[Incandenza]

We are in the same position, and can max both with all the money deducted pre-tax.  Between that and child-care flex savings we can deduct almost the entirety of my wife's paycheck. 

[PDXTabs]

I don't have a 457, but my GF also has access to a 403b and a 457. However, AFAIK, you should be careful if your 457 is non-governmental.

If anyone has a great article on non-governmental 457s I would love to read it. For the time being my GF is maxing out her 403b and also has access to a traditional IRA.

[dandarc]

Pretty common, and you've got it right - 457B limit is a whole separate bucket from the 403B one.  The government wants everyone to get rich if more people would just listen.

One of my gripes with the state I'm in is that for universities and school districts, there is a 403b.  Then for all state employees including the above there is a 457B.  But for rank and file state employees, there is no 401K.  So not everyone can "double dip" on the tax-deferred accounts.

Anyway, our legislature would probably take a serious request for this as a sign that state employees are paid too much, but they could just as easily take it as a way to stick it to the federal government, since we have no state income tax.

[Ben Hogan]

Yes, I do both :)

[coldestcat]

Ok, that was a simple answer.

TPGW brought up the child-care flex savings which I have to look up now. Each answer generates more questions, but these questions can lead to more money savings :)

[dandarc]

One thing to be aware of on 457's - the governmental kind are great, so if you're a public school or university employee, not much else to say there.

Non-governmental 457's are subject to creditors should the company go bankrupt.  So that's something to keep in mind if you're at, say, a non-profit that offers a "top-hat" plan.

[coldestcat]

How do I know if my 457 is governmental or not? I am just getting started with the account, in fact there is nothing in it yet but it is with Voya Financial. If it is a risk issue should I start working on a 403b first and wait until I can max that before using the 457? I kind of figured they were interchangeable but maybe thats not right.

[Ben Hogan]

Who do you work for?

[coldestcat]

Los Rios Community College District, a public institution.

[dandarc]

Pretty sure it is a governmental plan.  Public community colleges usually are, plus I found this via Google:

https://www.losrios.edu/business/downloads/Same_for_All/403B_457_Instructions.pdf

[coldestcat]

Ah, yes that is the one! So it is a governmental plan. Thanks.

So beyond the issue of taking money out, which is a long way away for me, it doesnt look like there is much difference in the plans. Is there a benefit to maxing one over another or just go with the 457, which is the one I have now, and wait to open the 403b until I have money to put into it?

[pigpen]

My wife and I are extremely lucky to both have access to both a 401k/403b and a 457 (governmental), so that's $72,000 that we're able to subtract from our taxable income right off the bat. This year (fingers crossed), we should be able to max out all four, plus each of our traditional IRAs, plus my HSA. Taxable investment account? Just finished our taxes for 2017, and our effective tax rate was 7%, and my wife only gained access to her 457 fairly late in the year, so I'm thinking it'll be even lower next year.

[hadabeardonce]

You can max both and still contribute to a Roth IRA too... if you are under the income limit.

[Agent Rosenflower]

I have both and have maxed them both out for the last few years. 457s are awesome, and are like a magic financial unicorn for ER, because there's no penalty in withdrawing from them early.

[simonsez]

So beyond the issue of taking money out, which is a long way away for me, it doesnt look like there is much difference in the plans. Is there a benefit to maxing one over another or just go with the 457, which is the one I have now, and wait to open the 403b until I have money to put into it?

Obviously the perfect world is to max both.  You're not there yet but you will be!  In your situation, I'd check employee matches and expense ratios.

I think most often any employer match would be conferred upon the 403b - so definitely make sure you are maxing that match, if any.  Beyond that, ceterus paribus I'd go with the 457 due to the ease of access later.  But, if they have different offerings and expense ratios then I might just chase the cheapest broad coverage index funds you can find.

Example, say employer matched 5% on 403b, no match on 457, and 403b and 457 had same offerings and expenses, the order I would do it is:
-5% in 403b
-fill up 457 bucket
-fill up rest of 403b bucket when able

Fill up your Roth/traditional IRA somewhere after the 5% match.  If your 403b/457 don't have the cheapest expenses and/or broad offerings to what you can find for your IRA, I'd fill Roth/traditional IRA immediately after 5% match.  If 403b/457 has comparable options, I personally would fill the Roth/traditional IRA after I had maxed out both the 457 and 403b.

Whether to use a Roth IRA or traditional IRA depends on your situation.  Some places also allow Roth 457 and Roth 403b plans (my wife's school district does this) in addition to the traditional vehicles.  The total 457/403b contributions are still capped at 18.5k each but can be any combination of before-tax and after-tax.

[coldestcat]

I see that the 403 and 457 are available but I dont know if they are Roth 403/Roth 457.
I dont have any kind of match with my employer except for on the HSA of $150 for family, so I am trying to max that first.

I am not exactly sure how  Roth/IRA plays into these accounts (or what exactly they are). If these are not IRAs I should get one somewhere else? Based on the order of investments, would that be investing in Vanguard at that point?

[coldestcat]

So beyond the issue of taking money out, which is a long way away for me, it doesnt look like there is much difference in the plans. Is there a benefit to maxing one over another or just go with the 457, which is the one I have now, and wait to open the 403b until I have money to put into it?

Whether to use a Roth IRA or traditional IRA depends on your situation.  Some places also allow Roth 457 and Roth 403b plans (my wife's school district does this) in addition to the traditional vehicles.  The total 457/403b contributions are still capped at 18.5k each but can be any combination of before-tax and after-tax.

My HR just happened to send something about this out today which is rare. I believe it was saying the 403b/457 can be both before tax or after. Wouldn't I want both to be before tax if possible?

[dandarc]

If you expect your marginal tax rate to be lower on withdrawal than when contributing, you want to go traditional (before tax).

If you expect your marginal tax rate to be higher on withdrawal than when contributing, you want to go Roth (after tax (but not after-tax to a traditional, that's a third option that some plans provide)).

For most on this site, the standard advice is that traditional is usually better.  If you are inclined to go Roth in one of these accounts, do Roth 403B before Roth 457B - there are some gotcha's around early withdrawal penalties that you might not expect with a Roth 457B.

Also, just for completeness, clarify if they mean Roth (pay tax now, no tax later) when they say "after tax".  Good to be sure you know exactly what the options are.

[aceyou]

Last year my wife and I both filled up our 403 and 457's.

This year we are filling up our Roth403 and our 457's, since with Married filing jointly we don't go above the 12% bucket until after 101k of AGI.  We plan to fill the 12% bucket up. 

[fixie]

Do it!  Take advantage of every tax-deferred option you have.  I've now maxed a 403B and a 457 plan.  I think the 457 is great and wish I had looked into it earlier.  It lowered my income enough such that I qualified for the saver's credit as well.  One of the best things about it is when you make withdrawals you don't get hit by penalties...just pay the lower taxes on income when you are retired...

fixie

[hadabeardonce]

So beyond the issue of taking money out, which is a long way away for me, it doesnt look like there is much difference in the plans. Is there a benefit to maxing one over another or just go with the 457, which is the one I have now, and wait to open the 403b until I have money to put into it?

Whether to use a Roth IRA or traditional IRA depends on your situation.  Some places also allow Roth 457 and Roth 403b plans (my wife's school district does this) in addition to the traditional vehicles.  The total 457/403b contributions are still capped at 18.5k each but can be any combination of before-tax and after-tax.

My HR just happened to send something about this out today which is rare. I believe it was saying the 403b/457 can be both before tax or after. Wouldn't I want both to be before tax if possible?

Yup, lower that taxable income. The money you would have sent to the federal government gets stowed away in the market, (normally)grows overtime, and your future self gets it when you may be in a lower tax bracket.

Roth IRAs are completely separate from the 403 and 457. They are pretty awesome when you start reading about them... https://www.bankrate.com/finance/retirement/advantages-of-roth-iras-1.aspx

My 2018 Contribution Plan
$18,500 403b (Vanguard Admiral funds that mimic the same target-date fund below)
$18,500 457b (Vanguard Target-date Fund)
$5,500 Roth IRA (Vanguard Target-date fund)

[coldestcat]

hadabeardonce, Your 403b and 457b are through your job right? And then the Roth IRA is just through Vanguard.
I also have an HSA that I have to MAX once I have enough income.

Fixie, I looked up the Retirement Savings Contributions Credit (Saver’s Credit) and I think I understand but I also appear not eligible since it is my last semester as a full time student. The website I looked it up on says full time students are not eligible, but will look into it in the future.

[hadabeardonce]

hadabeardonce, Your 403b and 457b are through your job right?

Yup.

And then the Roth IRA is just through Vanguard.

Yup.

I also have an HSA that I have to MAX once I have enough income.

Cool. The plan I'm enrolled in doesn't quality as a HDHP... I'm not sure if it would be worth switching so that I could open a HSA. I'll have to review that before the next open enrollment. Did you have the option of a cheaper health plan?

[coldestcat]

The HSA health plan that I have is available if you go with either of the cheaper two of the three available for the employees. The most widely used health plan in our area is so ubiquitous that the district came up with incentives to get people to move over to other plans, like the HSA.

[Rural]

Usually the 457 is more advantageous if you have both and can't max both because of the withdrawal options, but if you also have a pension plan in which you might someday want to buy time, also check to see if one or the other would allow you to roll funds into the pension. I could roll from my 457 but not from my 403b. And of course, check to see what investments are available and what the fees look like. It's a good problem to need to research!