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Learning, Sharing, and Teaching => Investor Alley => Topic started by: partdopy on August 22, 2018, 03:08:07 PM

Title: Should I choose 403b, 401k or 457?
Post by: partdopy on August 22, 2018, 03:08:07 PM
I recently started a job with an employer that offers the choice of a 403b or 401k and a 457. I am aware that I can contribute the maximum to both a 403b/401k and a 457, but for now I would like to choose one to max as I am saving for a house down payment in a relatively high COL area.

Both the 457 and 401k are managed by Voya, and it looks like their 'PERAdvantage 2045' fund has combined fees/expenses of .12%.

​The 403b is from TIAA CREF, and has a 'GROSS / NET EXPENSE RATIO of 0.09% / 0.09%' for a comparable 2045 fund according to what I find.


I'm not intimately familiar with the differences between the three, but the fees seem similar. I don't know much about either vendor though, my previous employer used Fidelity, and I use Vanguard for my IRA.

I am not planning on super early retirement as I do enjoy my career and I have always had a lot of vacation time, remote work opportunity, etc..., maybe 55 would be the earliest I would choose to retire.
Title: Re: Should I choose 403b, 401k or 457?
Post by: hadabeardonce on August 22, 2018, 03:47:54 PM
Check the rules, but I think you can withdraw from a 457 as soon as you sever from your employer. You'll incur a 10% penalty if you withdraw from a 403b prior to age 59.5.

Investment options make a difference. Go with the one that has better index funds to get the most bang for your buck. You could also split up contributions if you plan with withdraw from the 457 for a few years prior to 59.5.
Title: Re: Should I choose 403b, 401k or 457?
Post by: not_a_trex on August 22, 2018, 03:53:22 PM
The 457 has the benefit of being able to withdraw from it after you leave your employer. It has no minimum age restriction. All else being equal I would probably prioritize that one over the 403b and 401k.

It's interesting that you have access to both a 403b and 401k. Could you provide more details about each? Do you have matching in any of those accounts? Does your 403b offer catch up contributions after 15 years? Are both plans ERISA protected?
Title: Re: Should I choose 403b, 401k or 457?
Post by: partdopy on August 22, 2018, 04:03:37 PM
The 457 has the benefit of being able to withdraw from it after you leave your employer. It has no minimum age restriction. All else being equal I would probably prioritize that one over the 403b and 401k.

It's interesting that you have access to both a 403b and 401k. Could you provide more details about each? Do you have matching in any of those accounts? Does your 403b offer catch up contributions after 15 years? Are both plans ERISA protected?

I work for the University of Colorado.  Matching is 2-1 in a mandatory 401a, they auto enroll me at 5% and put in 10%, but do not match other contributions elsewhere.

As far as I read the contribution to the 401a doesn't count against maximum contributions elsewhere.  I assume all the plans are ERISA protected as CU is a large government employer.

I was leaning 457 due to the apparent freedom to take money out before 59.5.

Edit to add -- only the 457 offers catch-up
Title: Re: Should I choose 403b, 401k or 457?
Post by: hadabeardonce on August 22, 2018, 05:18:49 PM
Keep in mind that the employer match doesn't count toward the $18,500 contribution limit. I think the IRS single person limit is like $55,000, which may include that match:

https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-401k-and-profit-sharing-plan-contribution-limits

and the 401a thing is kind of weird. My wife has one of those. She get's a match with her 403b and then once a year they dump a % of her total salary into a 401a. I'd have to go back and review how it works again.
Title: Re: Should I choose 403b, 401k or 457?
Post by: DreamFIRE on August 22, 2018, 05:40:43 PM
I've got a 401a and a 457B.   The 401a has a $55K limit total yearly contribution (including employer match) plus I can put the standard max in the 457B as well.   But with such a high limit, I don't quite max it out, but I use it so that I'm paying very little at the marginal tax bracket rate.
Title: Re: Should I choose 403b, 401k or 457?
Post by: not_a_trex on August 22, 2018, 06:36:20 PM

As far as I read the contribution to the 401a doesn't count against maximum contributions elsewhere.  I assume all the plans are ERISA protected as CU is a large government employer.

I was leaning 457 due to the apparent freedom to take money out before 59.5.

Edit to add -- only the 457 offers catch-up

Good. I figured they would all be protected, but according to investopedia some 403bs become disqualified with employer contributions so I thought I'd check.

One other thing to be aware of is your 401k may allow you to take out a loan if you want to buy a house. I think the other plans only allow you to take a loan for hardships. That would also be worth investigating.
Title: Re: Should I choose 403b, 401k or 457?
Post by: Shenzhenigans on August 23, 2018, 01:23:11 AM
Is your employer a private or government entity? You should be aware that 457 accounts are considered an asset of the employer upon bankruptcy, so most people don't like to invite that additional risk if their employer is a private company.
Title: Re: Should I choose 403b, 401k or 457?
Post by: terran on August 23, 2018, 06:38:25 AM
Don't make the assumption that the 457 is ERISA protected as ERISA applies only to private retirement plans, so none of the plans are likely to be ERISA plans, but you're right that it's not subject to your employer's creditors since it's a governmental 457.

I would prioritize any contributions that get a match, and then the 457 for the early penalty free withdrawals despite the slightly higher expense ratio.
Title: Re: Should I choose 403b, 401k or 457?
Post by: not_a_trex on August 23, 2018, 08:41:21 AM
Don't make the assumption that the 457 is ERISA protected as ERISA applies only to private retirement plans, so none of the plans are likely to be ERISA plans, but you're right that it's not subject to your employer's creditors since it's a governmental 457.

Well I learned something today. I'm guessing this applies to the 403b as well. I'll try not to spread any more ERISA misinformation.

I don't know if anyone else had this question, but I was wondering why UC employees would be offered both a 403b and 401k. I always thought the benefits between the 2 mostly overlapped with perhaps some additional benefits in the 401k. It looks like UC offers the 403b and then employees can also contribute to the 457 and 401k through PERA, an organization that manages retirement benefits for several CO public departments. My guess is UC offered the 403b before it joined PERA or before PERA offered the 401k but I don't know the history to back it up. It could also be that UC wanted to provide a better retirement plan. Based on one anecdotal point it sounds like the fees are better in the 403b.
Title: Re: Should I choose 403b, 401k or 457?
Post by: partdopy on August 23, 2018, 09:09:45 AM
Don't make the assumption that the 457 is ERISA protected as ERISA applies only to private retirement plans, so none of the plans are likely to be ERISA plans, but you're right that it's not subject to your employer's creditors since it's a governmental 457.

Well I learned something today. I'm guessing this applies to the 403b as well. I'll try not to spread any more ERISA misinformation.

I don't know if anyone else had this question, but I was wondering why UC employees would be offered both a 403b and 401k. I always thought the benefits between the 2 mostly overlapped with perhaps some additional benefits in the 401k. It looks like UC offers the 403b and then employees can also contribute to the 457 and 401k through PERA, an organization that manages retirement benefits for several CO public departments. My guess is UC offered the 403b before it joined PERA or before PERA offered the 401k but I don't know the history to back it up. It could also be that UC wanted to provide a better retirement plan. Based on one anecdotal point it sounds like the fees are better in the 403b.

You are correct, the 401k and 457 are a legacy from the PERA retirement pension system, you can still enroll in the 401k as a new employee although new employees are not PERA employees.  You cannot enroll in the pension.  The 403b is offered by CU itself.

I'm probably going to go with the 457 first as it seems to have no downsides to the 403b/401k and offers more flexibility with age.  Things like ERISA protection, 457 being an asset of my employer, etc... were exactly the kind of questions i was looking for, thanks peoples.  Does anyone know if the 457 is vulnerable should PERA not be able to meet its pension payouts?
Title: Re: Should I choose 403b, 401k or 457?
Post by: not_a_trex on August 23, 2018, 09:08:01 PM
Because PERA was created by state legislation I would say its 457b plan falls under the government category of 457b. Following that, pub 4484 seems to read that your contributions are immediately vested and secured to you.
Title: Re: Should I choose 403b, 401k or 457?
Post by: GreenGrapes on August 24, 2018, 11:20:24 AM
With my job, (also a PERA worker), the PERA 401k fees definitely beat the 457.  Depending on your timeline, the 457 is nice as it doesn't have the age limit, but the extra fees (which are still not that bad) have to be worth it.

Maybe max the 401k for now and then max the 457 and do catch-up contributions later?
Title: Re: Should I choose 403b, 401k or 457?
Post by: not_a_trex on August 24, 2018, 11:46:01 AM
It sounded like the fees between the 457 and 401k were the same for OP so I'm not sure if that's a reason to switch. That is a good point though about catch up contributions. From the CU website:

Quote
If you have a 457 Plan, for the three consecutive years before your normal retirement age, you may be able to contribute up to twice the available limit if you under-contributed in prior years.

So if you were only going to contribute enough to max out one account but really wanted to crank up contributions before retirement you could contribute to the 403b/401k (maybe the 403b in your case since it sounded cheaper) for now and then go all in on the 457 your last few years. Since you're planning to retire so close to 59.5 anyway those last 3 years of contributions should help cover your expenses until you can withdraw from other accounts.

This is only advantageous for a small window of annual contributions and retirement dates, but it is an option.