Author Topic: State employees: do you have a 457(b) and 401(a)? Can you contribute to both?  (Read 4050 times)

MVal

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I might be leaving the private sector for a state job and I found out their Deferred Compensation plan is made up of a 457(b) plan, which holds the employee contributions, and a 401(a) plan which holds the employer contributions. They told me currently, the state is not matching contributions, so nothing would go into the 401(a) unless I rollover an old 401K or something. They said employees are not allowed to contribute to the 401(a) from their paychecks directly. Why? Does anyone know? If I had the means to max out my 457 plan, why couldn't I put money in the 401(a)?


KCM5

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I have a 457 and 401. I also cannot contribute to the 401(a).

I've never been given a reason why, but employers are allowed to put these limits on their plans. If you're not maxing an IRA, there's some more space for a tax advantaged account.

naners

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I work for a public college and I have a 401a, a 457 and a 403b. The 401a is where my employer contributions and my mandatory contributions go. I can't change either of those amounts. Not sure exactly what the situation is with your 401a though - maybe you can't elect to contribute to a 401a? Could be a tax code thing.

The 457 and 403b are where my optional contributions go - do you have a 403b available? If so, believe it or not you can contribute $18K pretax to BOTH the 457 and the 403b. Sounds like your 457 is just behaving like a 401k with no employer match. You should max it out if you can.

Enjoy the 457 - those things are awesome. No early withdrawals penalties, although like a 401k you will owe income tax on withdrawals.

MVal

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I work for a public college and I have a 401a, a 457 and a 403b. The 401a is where my employer contributions and my mandatory contributions go. I can't change either of those amounts. Not sure exactly what the situation is with your 401a though - maybe you can't elect to contribute to a 401a? Could be a tax code thing.

The 457 and 403b are where my optional contributions go - do you have a 403b available? If so, believe it or not you can contribute $18K pretax to BOTH the 457 and the 403b. Sounds like your 457 is just behaving like a 401k with no employer match. You should max it out if you can.

Enjoy the 457 - those things are awesome. No early withdrawals penalties, although like a 401k you will owe income tax on withdrawals.

I don't think there would be a 401b available, but that would be nice. Gosh, I forgot about the early withdrawal penalties on a 401K. So even if I did the Roth pipeline, I'd still have to lose 10% on the conversion due to penalties, crap. Well, I suppose if I was getting ready to FIRE, I could rollover the old 401K to the 401(a) and then be able to take my contributions to the Roth penalty free...right?

BarkyardBQ

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You should roll over your current 401k to a Traditional IRA, most likely at Vanguard. For better fund choices, and lower fees.

10% penalty would not apply to Trad to Roth conversion, but you will pay tax.

JZinCO

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I work for a public college and I have a 401a, a 457 and a 403b. The 401a is where my employer contributions and my mandatory contributions go. I can't change either of those amounts. Not sure exactly what the situation is with your 401a though - maybe you can't elect to contribute to a 401a? Could be a tax code thing.

The 457 and 403b are where my optional contributions go - do you have a 403b available? If so, believe it or not you can contribute $18K pretax to BOTH the 457 and the 403b. Sounds like your 457 is just behaving like a 401k with no employer match. You should max it out if you can.

Enjoy the 457 - those things are awesome. No early withdrawals penalties, although like a 401k you will owe income tax on withdrawals.
+1 to all of this.
Simple IRA, solo 401(k), 401(k), 403 (b), and maybe others I am missing, all have combined limits. 457 has its own limit.
401(a)are different from other plans, in that, employers can legally mandate an employee contribution, whether 0 or a non zero percent and are unadjustable by the employee.
The only penalty-free withdrawal rule for traditional 457's are that you must separate first from your employer. If 457 is roth, you must be of retirement age and account must be >5 yo.

edit: Also, 457s were at one point nonqualified according to IRS. Can someone verify?
I have also seen cases where in-service withdrawals of 457s are possible provided you meet a minimum of time since last contribution and a withdrawal $ amount. Anyone know the IRA rules on this or is this specific to custodians?
« Last Edit: October 28, 2015, 11:33:48 AM by JZinCO »

MVal

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You should roll over your current 401k to a Traditional IRA, most likely at Vanguard. For better fund choices, and lower fees.

10% penalty would not apply to Trad to Roth conversion, but you will pay tax.

I would have to check on comparing the fees I'm currently paying on my 401K vs. an IRA at Vanguard if I ever left my current, private sector job. I haven't gotten to that ninja level yet of understanding my funds, but I'm working on it.

I've not been offered this state job yet, but I'm interviewing for it this week. I'm trying to make a comparison if it is financially a good idea for me to take the job, as I'm getting 5% matching now and have great benefits with my current employer. Not sure if this will be a smart move retirement wise or not, especially since my starting salary at the new job will be much lower than what I get now and there will be no option for an HSA. The new job is also in the same town where my family lives, which would be nice, but that would also mean giving up my "awesome" life in the city. At least in the smaller city I could afford to live alone without a roommate like I'm doing now.

MVal

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Oh wait, actually I just found out you CAN enroll in a HDHP and fund an HSA with the state! The employer contribution is slightly lower at $300 rather than the $500 I get now, but this is good news.

naners

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I work for a public college and I have a 401a, a 457 and a 403b. The 401a is where my employer contributions and my mandatory contributions go. I can't change either of those amounts. Not sure exactly what the situation is with your 401a though - maybe you can't elect to contribute to a 401a? Could be a tax code thing.

The 457 and 403b are where my optional contributions go - do you have a 403b available? If so, believe it or not you can contribute $18K pretax to BOTH the 457 and the 403b. Sounds like your 457 is just behaving like a 401k with no employer match. You should max it out if you can.

Enjoy the 457 - those things are awesome. No early withdrawals penalties, although like a 401k you will owe income tax on withdrawals.

I don't think there would be a 401b available, but that would be nice. Gosh, I forgot about the early withdrawal penalties on a 401K. So even if I did the Roth pipeline, I'd still have to lose 10% on the conversion due to penalties, crap. Well, I suppose if I was getting ready to FIRE, I could rollover the old 401K to the 401(a) and then be able to take my contributions to the Roth penalty free...right?

I think there is a way to avoid the 10% penalty - poke around on the forums. I haven't paid much attention because FIRE is a looong way off.
You should roll over your current 401k to a Traditional IRA, most likely at Vanguard. For better fund choices, and lower fees.

10% penalty would not apply to Trad to Roth conversion, but you will pay tax.

I would have to check on comparing the fees I'm currently paying on my 401K vs. an IRA at Vanguard if I ever left my current, private sector job. I haven't gotten to that ninja level yet of understanding my funds, but I'm working on it.


Understanding the fees on your funds is not ninja level, it is an *essential first step*. The fees you pay (plus your asset allocation) have an enormous influence on your accumulation over the long run. You should find out right now what your fees are, and if possible change your allocation to funds within your 401K with the lowest fees (while maintaining an appropriate asset allocation). If there are no funds with low fees, grit your teeth but roll into an Vanguard IRA the minute you leave your job.

BarkyardBQ

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Understanding the fees on your funds is not ninja level, it is an *essential first step*. The fees you pay (plus your asset allocation) have an enormous influence on your accumulation over the long run. You should find out right now what your fees are, and if possible change your allocation to funds within your 401K with the lowest fees (while maintaining an appropriate asset allocation). If there are no funds with low fees, grit your teeth but roll into an Vanguard IRA the minute you leave your job.

Also, if you do leave your employer, your 401k probably already has custodial fees applied, which are taken from your balance quarterly by the account manager. Moving your 401k balance to an IRA once you leave is likely cheaper because this fee won't exist in your IRA. My fidelity plans charge $24 a year... this is on the low end of employer sponsored fees.

MVal

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I would have to check on comparing the fees I'm currently paying on my 401K vs. an IRA at Vanguard if I ever left my current, private sector job. I haven't gotten to that ninja level yet of understanding my funds, but I'm working on it.


Understanding the fees on your funds is not ninja level, it is an *essential first step*. The fees you pay (plus your asset allocation) have an enormous influence on your accumulation over the long run. You should find out right now what your fees are, and if possible change your allocation to funds within your 401K with the lowest fees (while maintaining an appropriate asset allocation). If there are no funds with low fees, grit your teeth but roll into an Vanguard IRA the minute you leave your job.
[/quote]

Well, I guess I didn't mean the "black belt" ninja, just the mid-level ninja. I know the fees are fundamental to understand, but I've only come to understand how 401Ks and IRAs work just this year, so now my next step is understand how the fees are charged and what I can do about it. My uneducated guess is the fees have improved in our 401K this year since we recently received notice a lot of our funds have been changed to Vanguard, but I would have to research more. My sister already works for the state, so maybe I could research her 457b funds and make a comparison on what my mileage might be if I worked there too.

pdxvandal

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I can contribute both to 457 (up to 18k) and a 401a (employer match, but have to commit to an employee pre-tax contribution % when you get hired).

Plus, an HSA. Great benefits if you're a Mustachian.

MVal

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The trouble is I'd go from making about $40K to making $30K at this new job. But the new job is more along the lines of my preferred career path, so I'll have to make a choice as to whether the pay cut is worth it or not. I live in Missouri, so state employees don't always get the best raises.