Author Topic: On my way to max out 457 account  (Read 8020 times)

Guizmo

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On my way to max out 457 account
« on: January 29, 2015, 08:50:01 AM »
Hi y'all,

I feel pretty bad ass as I just got my first paycheck of the year and I am on my way to reach the limit of the 457 account by the end of the year for the first time.

I am 25 and make 42k a year at this job. I am looking forward to making more money in the next few years so I can max out the 401k as well.

Gin1984

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Re: On my way to max out 457 account
« Reply #1 on: January 29, 2015, 08:50:50 AM »
Don't you mean 403b not 401k?

DrF

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Re: On my way to max out 457 account
« Reply #2 on: January 29, 2015, 10:10:19 AM »
Very badass!!

The 457 is probably the most amazing retirement vehicle out there. Congrats!

MustachianMD

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Re: On my way to max out 457 account
« Reply #3 on: January 29, 2015, 04:40:14 PM »
Can I ask why your are not maxing your 401k/403b first? Do you get a better match from your employer for the 457b? I have the option of both and I maxed out my 403b first.

The reason for this, though unlikely your 457b is subject to your employer's creditors so you can potentially lose it. I figure it is unlikely with most large nonprofit/university/government entities but it is a possibility none the less. I personally would max out my 401k/403b first.

arebelspy

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Re: On my way to max out 457 account
« Reply #4 on: January 29, 2015, 04:48:53 PM »
Can I ask why your are not maxing your 401k/403b first? Do you get a better match from your employer for the 457b? I have the option of both and I maxed out my 403b first.

The reason for this, though unlikely your 457b is subject to your employer's creditors so you can potentially lose it. I figure it is unlikely with most large nonprofit/university/government entities but it is a possibility none the less. I personally would max out my 401k/403b first.

It's possible, but so unlikely (if you work for the government especially) that it's well worth doing the 457 first because of how amazing it is for early retirees.

403b has the same age restrictions (and hoops to jump through to avoid those) as a 401k.  A 457 you can take at any time after you no longer work there, penalty free.

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johnny847

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Re: On my way to max out 457 account
« Reply #5 on: January 29, 2015, 04:55:51 PM »
Can I ask why your are not maxing your 401k/403b first? Do you get a better match from your employer for the 457b? I have the option of both and I maxed out my 403b first.

The reason for this, though unlikely your 457b is subject to your employer's creditors so you can potentially lose it. I figure it is unlikely with most large nonprofit/university/government entities but it is a possibility none the less. I personally would max out my 401k/403b first.
This is not true for governmental 457b's - governmental 457b's are held in trust on the behalf of the employee. They cannot be subject to your employer's creditors.
« Last Edit: January 29, 2015, 04:59:16 PM by johnny847 »

MustachianMD

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Re: On my way to max out 457 account
« Reply #6 on: January 30, 2015, 12:02:38 AM »
This is not true for governmental 457b's - governmental 457b's are held in trust on the behalf of the employee. They cannot be subject to your employer's creditors.

Nice to know. I have a university 457b and it is potentially subject to creditors, though I know the risk is very low.

http://www.irs.gov/Retirement-Plans/Non-Governmental-457(b)-Deferred-Compensation-Plans

My understanding from my former employer and now current employer is that you take the money out when you leave, roll it into an IRA, or keep it in the 457b. If you take it out you are subject to penalty just like a 403b unless you have a hardship withdrawal approved. What I pulled up in the bogleheads wiki suggest the same.

http://www.bogleheads.org/wiki/457(b)

Don't get me wrong, I think the 457b is great and I am happy to have one. Now that I am working for a state university system, I am excited to know that these funds are protected from creditors.

SeanTankarian

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Re: On my way to max out 457 account
« Reply #7 on: January 30, 2015, 08:09:46 AM »
Hey Guizmo congrats on having the discipline to max out your 457 plan.  Just a bit of advice though; be careful of 'over-funding' your 457 plan because it could lead to some potentially negative tax consequences down the road.  With your income, you might be better served maxing out your Roth IRA first, plus you can grab your Roth if you put a down payment on a home - something you can't do with  a 457 plan.  You'll have to decide what's best for you obviously, but here's a good article about 457 plan 'tax zombies' that should help you with your research http://457planinfo.com/attack-of-the-457-plan-tax-zombies-part-1-of-2/

Guizmo

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Re: On my way to max out 457 account
« Reply #8 on: January 30, 2015, 08:55:32 AM »
Thanks for the concern Sean Tankarian. As an early retiree, I believe my tax rate will be even lower than today especially if I am married and can withdraw about $20k tax free. So I am not too concerned about paying more later.

DrF

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Re: On my way to max out 457 account
« Reply #9 on: January 30, 2015, 09:55:45 AM »
This is not true for governmental 457b's - governmental 457b's are held in trust on the behalf of the employee. They cannot be subject to your employer's creditors.

Nice to know. I have a university 457b and it is potentially subject to creditors, though I know the risk is very low.

http://www.irs.gov/Retirement-Plans/Non-Governmental-457(b)-Deferred-Compensation-Plans

My understanding from my former employer and now current employer is that you take the money out when you leave, roll it into an IRA, or keep it in the 457b. If you take it out you are subject to penalty just like a 403b unless you have a hardship withdrawal approved. What I pulled up in the bogleheads wiki suggest the same.

http://www.bogleheads.org/wiki/457(b)

Don't get me wrong, I think the 457b is great and I am happy to have one. Now that I am working for a state university system, I am excited to know that these funds are protected from creditors.

I've never hear of any penalty with a 457b (that is if you have left the employer where you have your 457).

Please see

http://www.457bwise.com/faqs/

"What are an employee's options when switching jobs?
       Public plans State and local government plans.
457(b) money can be moved into your new employer's 457(b), 403(b) or 401(k) if the plan accepts such transfers, or into a Rollover IRA. Public (governmental) plan 457(b) money is not subject to the age 59 1/2 withdrawal rule, so money can be withdrawn (subject to income tax on the full amount) without incurring a 10% early withdrawal penalty. Another option when switching jobs is to leave the money where it is, if the plan allows."

MustachianMD

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Re: On my way to max out 457 account
« Reply #10 on: January 30, 2015, 01:01:32 PM »
I always maxed out my 457  and I began taking small withdrawals from it when I quit working at 42. Because I'm able to live on a small amount of money I was able to keep it under the taxable amount. So no income tax and no 10% early withdrawal penalty and not having to wait almost 20 years to get it was awesome. Means I could leave IRA's, etc... for my old age

Aah, good to know. I max out both because of my current savings rate so it has been a non issue is choosing which one to contribute to. It is nice to know that I can take this out and just be subject to income tax without the 10% penalty if it is a government 457b, which my new 457b is. My old institution was tax exempt non governmental so the withdrawal rules are not as generous.

As my plan currently stands I get a 8% employer contribution for my 403b and no contribution from my 457b. For people trying to save, it is probably best to:

1. Contribute into your 403b to get your match (don't want to leave free money at the table)
2. Work on maxing out your 457b
3. Then max out the rest of your 403b (the non matched portion)

Abe

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Re: On my way to max out 457 account
« Reply #11 on: January 31, 2015, 10:58:01 AM »
Regarding the tax zombies article on 457 plans: basically it says that if you decide to get a new job (or your spouse keeps working), you will end up in a higher or same tax bracket as before retiring. Wouldn't you just not withdraw from the 457b account until necessary (i.e., stop working altogether)?  I ask this because my parents are nearing retirement and have been maxing their 401k and 457b accounts so have a substantial amount saved in them. They are already in the highest marginal bracket so doubt it'll stay that high in retirement, but is there something I'm missing unique to 457 plans? Thanks!

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Re: On my way to max out 457 account
« Reply #12 on: February 06, 2015, 03:49:15 AM »
Guizmo,
I love the idea of maxing out your 457!  My wife and I also fully fund our 457 accounts along with our 403b plans.  As mentioned in other posts, 457s are great because they are not subject to early withdrawal penalties.  When we leave our jobs, we will tap these funds for living expenses.  Since we try to keep our income within the 10% bracket, we usually pay very little federal income tax. 

We try to load up our various accounts in this order:  457, 403b, IRA, HSA, and Coverdell ESA.  So, from Jan. to June we funnel most of our paychecks to the 457.  By maxing out our 457 accounts, we'll have $42,000 pile of money that can be used for living expenses when we "separate service."  ($42K = wife's $18K and my $24K, I'm an old fart who gets catch-up contributions)

Good luck hitting your goals!  Ed