Author Topic: Just found out my wife has a 457 plan  (Read 3719 times)

Frizhand

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Just found out my wife has a 457 plan
« on: February 15, 2017, 08:55:22 AM »
Until I heard The Millionaire Educator talk about 457 plans recently I had no idea they existed.  I just learned today that she does have one.  My wife has been a teacher for 20+ years, we've worked with 2 financial advisers and she's been to the benefits meetings at her school.  Nobody has ever mentioned them to us (unless my wife wasn't paying attention at those meetings!).  I'm not sure how we missed this but we need to start contributing asap so we have easier access to the funds when we retire early.

Does anyone have any experience with 457s?  Anything I should be aware of?  It's my understanding they operate like a 403B except she can withdraw the money penalty free before she turns 59 1/2.  Is there anything else I should know?

dandarc

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Re: Just found out my wife has a 457 plan
« Reply #1 on: February 15, 2017, 09:04:34 AM »
#1 - be sure it is a governmental 457 plan.  Probably is, but you want to be sure on this.

Biggest thing is when she quits to leave the money in the 457.  If you roll it over to an IRA, you lose the ability to draw it penalty free before 59.5.

Frizhand

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Re: Just found out my wife has a 457 plan
« Reply #2 on: February 15, 2017, 09:46:19 AM »
#1 - be sure it is a governmental 457 plan.  Probably is, but you want to be sure on this.

Biggest thing is when she quits to leave the money in the 457.  If you roll it over to an IRA, you lose the ability to draw it penalty free before 59.5.

thanks!  what else could it be called (other than a 'governmental 457')??

dandarc

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Re: Just found out my wife has a 457 plan
« Reply #3 on: February 15, 2017, 09:55:32 AM »
There are non-governmental 457 plans.  The difference is the funds are not held in trust for the employees - in a governmental plan, the 457 assets belong to the employees, and not the employer, so they cannot be seized by the government's creditors, even in a bankruptcy.  However, in a non-government 457, the assets belong to the employer until distributed, so they could potentially be lost.

For a teacher in a public school, the 457 is almost certainly a governmental plan.

Also - your wife isn't alone in not fully reading the benefits packet.  My wife once asked HR if she could defer more to FRS, thinking this was her only retirement vehicle available.  Answer was no - bummer since they have really good funds available there.  Then she applied for a job at the legislature, and I looked over the benefits flyer - what is this "deferred compensation" thing?  Turns out she has had access to this the whole time she's been with the state.

threefive

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Re: Just found out my wife has a 457 plan
« Reply #4 on: February 15, 2017, 12:17:45 PM »
Another fantastic benefit of the 457 is that it has a separate contribution limit of $18,000 from the 401k/403b. So if the options are anything like they are with my state, then you may have access to:

401a defined benefit or contribution plan with fixed % contributed
401k and/or 403b up to $18,000
457 up to $18,000

The 401k and 403b have limits that are tied together. I'm in a 401a defined contribution plan that socks away about 13.5% of my salary (mandatory). Then, I have $36,000 in tax-deferred space in the combination of a 401k and 457. I max the 457 first due to the early withdraw benefits. I would start filling up 401k space, but my family insists on spending at least some of my paycheck for food, plus I can generally get my total federal tax liability to $0 with just the 457 and spousal IRA.

sw1tch

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Re: Just found out my wife has a 457 plan
« Reply #5 on: February 15, 2017, 12:35:32 PM »
I only wish I had maxed my 457 from the get-go.  Of course I had never known what a 457 was until a few years ago and have maxed it ever since.  Make sure to jump on that opportunity; it's such an effective FIRE tool!

I'd prioritize as follows:
1) 457 - full 18000
2) 401/403 - if employer has a match, contribute the full 18000.  Make sure employer match is applied to this contribution.  The match can take this amount above 18000 as long as the sum is < 53000
3) IRA (or Roth depending on your situation) - 5500
4) Taxed - everything else

Frizhand

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Re: Just found out my wife has a 457 plan
« Reply #6 on: February 15, 2017, 12:57:41 PM »
Thanks for the help so far. 

I have 2 kids headed to college in a couple years...Anyone know if I would need to included the 457 as an asset on the FAFSA?  Or is it excluded, like IRAs or 401Ks?

josh4trunks

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Re: Just found out my wife has a 457 plan
« Reply #7 on: February 15, 2017, 01:15:06 PM »
Thanks for the help so far. 

I have 2 kids headed to college in a couple years...Anyone know if I would need to included the 457 as an asset on the FAFSA?  Or is it excluded, like IRAs or 401Ks?

As a qualified retirement plan, 457b assets are excluded.

CorpRaider

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Re: Just found out my wife has a 457 plan
« Reply #8 on: February 17, 2017, 06:13:19 AM »
OP, as for stuff to watch out for, check out millionaire educator's blog.  He's got at least one post about how these plans often are offered via annuities and have high fee options, etc.  I know sometimes the district will have multiple 457 plan "providers".  My wife for example could participate in the state 457 which is ok as far as fees and investment options or in several plans offered by insurance companies, one of which I have never heard of.  One could envision a scenario where the fees and investment options sucked so hard that you would want to do the 401(k) and trad ira first, despite the fewer steps required to get your money penalty free, so just be aware of that.

IMOP it is a travesty what some of these providers and districts try to pull on their moderately compensated, generally risk-averse, high social utility employees.
« Last Edit: February 17, 2017, 06:17:33 AM by CorpRaider »

Mezzie

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Re: Just found out my wife has a 457 plan
« Reply #9 on: February 17, 2017, 07:02:48 PM »
I just heard about them on here after 15 years of teaching and contributing to a 403. Now I'm spreading the word to all my colleagues; so far not one has heard of it.

PhysicianOnFIRE

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Re: Just found out my wife has a 457 plan
« Reply #10 on: February 18, 2017, 10:58:05 AM »
I only wish I had maxed my 457 from the get-go.  Of course I had never known what a 457 was until a few years ago and have maxed it ever since.  Make sure to jump on that opportunity; it's such an effective FIRE tool!

I'd prioritize as follows:
1) 457 - full 18000
2) 401/403 - if employer has a match, contribute the full 18000.  Make sure employer match is applied to this contribution.  The match can take this amount above 18000 as long as the sum is < 53000
3) IRA (or Roth depending on your situation) - 5500
4) Taxed - everything else

Don't forget HSA if you have a HDHP. That's another $6,750 per family in tax deductions, and potentially tax free withdrawals.

sw1tch

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Re: Just found out my wife has a 457 plan
« Reply #11 on: February 20, 2017, 06:54:53 AM »
I only wish I had maxed my 457 from the get-go.  Of course I had never known what a 457 was until a few years ago and have maxed it ever since.  Make sure to jump on that opportunity; it's such an effective FIRE tool!

I'd prioritize as follows:
1) 457 - full 18000
2) 401/403 - if employer has a match, contribute the full 18000.  Make sure employer match is applied to this contribution.  The match can take this amount above 18000 as long as the sum is < 53000
3) IRA (or Roth depending on your situation) - 5500
4) Taxed - everything else

Don't forget HSA if you have a HDHP. That's another $6,750 per family in tax deductions, and potentially tax free withdrawals.

Yep, max your contributions to an HSA as well before putting anything into taxed accounts.

NorthernBlitz

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Re: Just found out my wife has a 457 plan
« Reply #12 on: February 20, 2017, 08:11:04 AM »
I only wish I had maxed my 457 from the get-go.  Of course I had never known what a 457 was until a few years ago and have maxed it ever since.  Make sure to jump on that opportunity; it's such an effective FIRE tool!

I'd prioritize as follows:
1) 457 - full 18000
2) 401/403 - if employer has a match, contribute the full 18000.  Make sure employer match is applied to this contribution.  The match can take this amount above 18000 as long as the sum is < 53000
3) IRA (or Roth depending on your situation) - 5500
4) Taxed - everything else

Don't forget HSA if you have a HDHP. That's another $6,750 per family in tax deductions, and potentially tax free withdrawals.

I'm not super familiar with 457s, but I think that my brother may be able to access one. My understanding from briefly looking at an Investopedia site is that 457s let you take out the money without penalty before 59.5 and let you "make up" contributions as you approach retirement.

Can I ask why you max out the 457 before taking an employer match in a 401k/403b?

I would have though that this order would have been better:

1. 401k/403b to max out employer contributions.
2. Max out 457
3. Max out remaining 401/403/(Roth) IRA.
4. Taxable

We'll all need to access some money after 59.5 anyway, so I feel like taking the free immediate gains is always the best thing to do first. What am I missing?

sw1tch

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Re: Just found out my wife has a 457 plan
« Reply #13 on: February 20, 2017, 09:19:44 AM »
I apologize if I caused any confusion.  In my current situation, my employer offers both a 457 and a 401.  They allow me to apply the employer match (3,500 a year) into either my 457 or 401k.  Each plan has slightly different rules:
    - the max contribution into the 457 is capped at 18,000/yr (this is for both employee and employer contributions)
    - for the 401k, employee contribution is up to 18,000/yr and you can also get "extra" contributions from your employer up to a total of 53,000.
    - also, as you stated, you can withdraw from the 457 penalty-free prior to 59.5

Given the above rules, in my situation I max the 457 first (since it'll benefit me greatly during FIRE due to the lack of the 10% early withdrawal penalty).  Then, I also contribute enough to the 401k to get the full employer match.  It just so happens that I'm maxing that too so I'm getting a full contribution of 21,500 (18000 + 3500) into my 401k/yr.

Ideally, you want to max the 457 and then contribute enough to your 401k to get your employer's full match.  I would also prioritize HSA contributions prior to IRA/Roth IRA contributions, but that's a bit more of a toss-up based on your personal health-related priorities.

aceyou

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Re: Just found out my wife has a 457 plan
« Reply #14 on: February 20, 2017, 12:19:17 PM »
I just wanted to say that I love the topics on this forum. 

Back when I was an idiot in my 20's, I'd hang round the MensHealth forums.  All the posts would be something like "Just found out my wife is cheating on me".

Here is all OMG, all this time my wife has had a 457 plan, we could be sheltering our taxes more efficiently!!!