Affirm my logic - 457 over a 403b

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Affirm my logic - 457 over a 403b

Postby NHRATA01 » Wed Jan 30, 2013 4:14 pm

Just a little background - I'm 33, wife 32. I've been funding a 401K (Fidelity with quality low-cost fund choices) since the start 12 years ago, and for the past couple of years to the max contribution. I have been maxing my Roth IRA in that entire timeframe also (following general bogglehead guidance). And now for the past 2 years the wife's Roth. I had not pursued use of my wife's tax advantaged space since we really couldn't spare it. In any event now we're starting to abut the Roth limits, so I've been exploring increasing our tax deductable space.

She is a schoolteacher in NY, and both the 403b and 457 are available. I was originally unaware of/ignorant to the 457 and a few months back was looking at her 403b options. Frankly, they are unpalatable, at least in boggleheadian terms. Of the 8 providers, 6 are insurance companies primarily offering annuities. 2 are investment firms, one with very high costs, and while the other does offer a variety of 3rd party mutual funds though their fee structure is unclear and they direct you to an "investment professional" to setup an account - I'm not even certain they offer any kind of online access or management. Provider list shown here: https://omni403b.com/PlanDetail.aspx?cl ... fBPaXU2ug= Be sure to note how as of 6/12 they removed Vanguard and Fidelity as eligible new providers. Lovely.

Exasperated, I researched the 457 more in depth, and it seems to be a far better option for government employees, at least with regards to the New York State plan: https://www.nysdcp.com/tcm/nysdcp/stati ... ptions.pdf
While the fund offering isn't huge, it does have several Vanguard index funds. Notably missing are REIT and International but I can adjust my AA in other accounts to make up for those. Administrative fees are very attractive. There is also the benefit of being able to make withdrawals upon retirement prior to age 59.5. There seems to be less portability if she were to switch careers or move out of state, but that seems unlikely for quite some time. The forum search suggests that in general the 457 is advantageous if it's a government plan, and the 403b for a private.

So as a sanity check, is there anything I am missing, or any reason the 403 would be more advantageous in our case? Many thanks for the advice, as always.
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Re: Affirm my logic - 457 over a 403b

Postby Peter Foley » Wed Jan 30, 2013 4:26 pm

Public 457 accounts are fairly equivalent to 403bs with a couple differences. You can take a loan from a 403b account - something which has not been my experience with 457 accounts. The advantage of a 457 is that there is no early withdraw penaly - the funds are available when you separate from your employer. This is a big plus for some teachers who don't want to hold out until they reach 59 1/2 years of age. (Early withdrawals from 403bs w/o penalty are also permitted based on some other factors.)

I have a state 457 account and the options are good in terms of cost, but not particularly broad. If your wife's 457 has better investment options, I would not hesitate to go that route.
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Re: Affirm my logic - 457 over a 403b

Postby Easy Rhino » Wed Jan 30, 2013 5:01 pm

the NY SDP 457 seems waaay better, fees are $20 annually + .05% + the funds expense ratio. That's pretty good. Plus there's the nicety of being able to withdraw earlier. There may not be loan options, as already mentioned.

My wife's situation here is sort of the reverse. There are several 403b options, a couple of which are pretty good, and only one 457 option, which is pretty meh.
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Re: Affirm my logic - 457 over a 403b

Postby sometimesinvestor » Wed Jan 30, 2013 5:14 pm

usimg the link you provided nys offers 3 international funds

International Stock Funds - Established Markets
Foreign Stock
International Equity Fund - Active Portfolio 11
International Equity Fund - Index Portfolio 11
International Stock Funds - Emerging Markets
Diversified Emerging Markets
MSIF Emerging Markets Portfolio - Institutional THe expense ration for the EM fund is high but the international index er is only .2
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Re: Affirm my logic - 457 over a 403b

Postby MN Finance » Wed Jan 30, 2013 5:51 pm

There's no downside to the 457b, and it should be just as portable to roll into an IRA if she separates from service with the employer.
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Re: Affirm my logic - 457 over a 403b

Postby rr2 » Wed Jan 30, 2013 6:16 pm

MN Finance wrote:There's no downside to the 457b, and it should be just as portable to roll into an IRA if she separates from service with the employer.

This is not always true since not all 457b's are portable. In fact, my wife has one where you must take a distribution 1 year after you separate from service OR you have to roll it over into another qualified 457b plan. You cannot roll it into an IRA or a 401k or a 403b. The only positive is that such a required distribution does not have any penalties. Obviously, you have to pay taxes on the distribution.
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Re: Affirm my logic - 457 over a 403b

Postby mesaverde » Wed Jan 30, 2013 6:28 pm

hello NHRATA01,
I've been maxing out a government 457b plan (as opposed to 403b) for years because of the clear advantage of the 457- one can withdraw penalty free at ANY age upon separation from service. Translation= as soon as you think you have enough saved, you have the option of retiring, perhaps well before you turn 59.5.

Go for it, especially if the costs are reasonable!
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Re: Affirm my logic - 457 over a 403b

Postby letsgobobby » Wed Jan 30, 2013 9:31 pm

rr2 wrote:
MN Finance wrote:There's no downside to the 457b, and it should be just as portable to roll into an IRA if she separates from service with the employer.

This is not always true since not all 457b's are portable. In fact, my wife has one where you must take a distribution 1 year after you separate from service OR you have to roll it over into another qualified 457b plan. You cannot roll it into an IRA or a 401k or a 403b. The only positive is that such a required distribution does not have any penalties. Obviously, you have to pay taxes on the distribution.

Is yours a governmental or nongovernmental 457?
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Re: Affirm my logic - 457 over a 403b

Postby epimedium » Wed Jan 30, 2013 10:04 pm

The NYSDCP 457 plan is great - my wife and I both use it. I agree that OMNI dropping Fidelity and Vanguard for new accounts is a shame.
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Re: Affirm my logic - 457 over a 403b

Postby rr2 » Wed Jan 30, 2013 10:59 pm

letsgobobby wrote:
rr2 wrote:
MN Finance wrote:There's no downside to the 457b, and it should be just as portable to roll into an IRA if she separates from service with the employer.

This is not always true since not all 457b's are portable. In fact, my wife has one where you must take a distribution 1 year after you separate from service OR you have to roll it over into another qualified 457b plan. You cannot roll it into an IRA or a 401k or a 403b. The only positive is that such a required distribution does not have any penalties. Obviously, you have to pay taxes on the distribution.

Is yours a governmental or nongovernmental 457?

It is a governmental plan with a state university for part time employees. It is mandatory with fixed employee contributions of 7.5%. No additional contributions are permitted.
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Re: Affirm my logic - 457 over a 403b

Postby ofcmetz » Thu Jan 31, 2013 12:14 am

Your logic is confirmed. Sounds like you have a decent 457B and should prioritize your investments to that first. Coolest thing is you could max both as contributions to either one don't offset the other. :D

I participated in my 403B plan for many years before I even learned about the 457B. While my 403B is good, the 457B is even better with my choices. Having the lack of 10% penalty makes it even easier to save the money as I'll be pension eligible in my mid 40's. (It's a police thing). My investment priority is

1. Wife's 401K up to match
2. My 457B up to max
3. Split remainder between my 403B and ROTH IRA's.
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Re: Affirm my logic - 457 over a 403b

Postby letsgobobby » Thu Jan 31, 2013 12:34 am

rr2 wrote:
letsgobobby wrote:
rr2 wrote:
MN Finance wrote:There's no downside to the 457b, and it should be just as portable to roll into an IRA if she separates from service with the employer.

This is not always true since not all 457b's are portable. In fact, my wife has one where you must take a distribution 1 year after you separate from service OR you have to roll it over into another qualified 457b plan. You cannot roll it into an IRA or a 401k or a 403b. The only positive is that such a required distribution does not have any penalties. Obviously, you have to pay taxes on the distribution.

Is yours a governmental or nongovernmental 457?

It is a governmental plan with a state university for part time employees. It is mandatory with fixed employee contributions of 7.5%. No additional contributions are permitted.

I thought all governmental 457b plans could be rolled over to any qualifying plan but perhaps additional restrictions are allowable. That sounds like a dog.
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Re: Affirm my logic - 457 over a 403b

Postby rr2 » Thu Jan 31, 2013 2:29 am

letsgobobby wrote:
rr2 wrote:
letsgobobby wrote:
rr2 wrote:
MN Finance wrote:There's no downside to the 457b, and it should be just as portable to roll into an IRA if she separates from service with the employer.

This is not always true since not all 457b's are portable. In fact, my wife has one where you must take a distribution 1 year after you separate from service OR you have to roll it over into another qualified 457b plan. You cannot roll it into an IRA or a 401k or a 403b. The only positive is that such a required distribution does not have any penalties. Obviously, you have to pay taxes on the distribution.

Is yours a governmental or nongovernmental 457?

It is a governmental plan with a state university for part time employees. It is mandatory with fixed employee contributions of 7.5%. No additional contributions are permitted.

I thought all governmental 457b plans could be rolled over to any qualifying plan but perhaps additional restrictions are allowable. That sounds like a dog.

Yup. The contributions go into a stable value fund with a minimum guarantee of 3%. Also this mandatory contribution is in lieu of social security contributions. Since it is part time, the contributions are not much. I look at it as a savings account.
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Re: Affirm my logic - 457 over a 403b

Postby Keep It Simple » Thu Jan 31, 2013 8:20 am

mesaverde wrote:hello NHRATA01,
I've been maxing out a government 457b plan (as opposed to 403b) for years because of the clear advantage of the 457- one can withdraw penalty free at ANY age upon separation from service. Translation= as soon as you think you have enough saved, you have the option of retiring, perhaps well before you turn 59.5.

Go for it, especially if the costs are reasonable!


I also am surprised that the 457b option is often overlooked over the 403b on this forum. The 403b seems to be the go to choice for most, and the 457b is often used second if there are funds left over. This surprises me given the 457b advantage of no penalty for early withdrawal after separation from employer. This is a HUGE benefit of the 457b and can allow for an earlier retirement age than what might otherwise have been impossible given the penalties for early withdrawal associated with the 403b.

Is there anything about the 403b which might make it preferable to the 457b(other than if the 457b has horrible fund choices)? What am I missing here?

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Re: Affirm my logic - 457 over a 403b

Postby NHRATA01 » Thu Jan 31, 2013 9:07 am

Can't thank the board enough for the feedback. Definitely makes me feel more comfortable in knowing I'm making the correct move. :beer

One last question - is that correct that one individual can utilize both the 403 and 457 and thereby double his/her tax exempt space? I was under the impression that for a given individual, between a 401/403/457 the $17,500 cap applied across all accounts and could not be exceeded?
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Re: Affirm my logic - 457 over a 403b

Postby Keep It Simple » Thu Jan 31, 2013 9:32 am

NHRATA01 wrote:Can't thank the board enough for the feedback. Definitely makes me feel more comfortable in knowing I'm making the correct move. :beer

One last question - is that correct that one individual can utilize both the 403 and 457 and thereby double his/her tax exempt space? I was under the impression that for a given individual, between a 401/403/457 the $17,500 cap applied across all accounts and could not be exceeded?


This is correct - you can fully contribute to both of these in any given year if they are both available to you!

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Re: Affirm my logic - 457 over a 403b

Postby epimedium » Thu Jan 31, 2013 12:13 pm

This is correct - you can fully contribute to both of these in any given year if they are both available to you!


+1

It took me a few years to figure that one out, but now we max out both 457 and 403b. A couple could tax defer up to $70k this year utilizing both options (if they are available)!
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Re: Affirm my logic - 457 over a 403b

Postby ofcmetz » Thu Jan 31, 2013 12:45 pm

epimedium wrote:
This is correct - you can fully contribute to both of these in any given year if they are both available to you!


+1

It took me a few years to figure that one out, but now we max out both 457 and 403b. A couple could tax defer up to $70k this year utilizing both options (if they are available)!


+2

This works for me as my 403B and 457B's have better choices than my wife's plans. We simply contribute enough to get a match from hers and then dump the rest into mine (35,000 in space :D ).
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Re: Affirm my logic - 457 over a 403b

Postby jaj2276 » Thu Jan 31, 2013 1:29 pm

My wife's "normal retirement" either goes into a defined benefit (pension) plan or a 401(a) (which is just like a 401k except you can decide NOT to make contributions or change the amount).

She also has the ability to contribute to both a 401(k) and a 457(b) plan! She doesn't make enough money yet, but we fund both of her 401k and 457b accounts to about $15k/yr each. She then elected the defined benefit plan for her "normal retirement" option just as a hedge against the self-directed not working out. I've been working longer than her and make significantly more money than her, but in about 10 years I imagine her retirement accounts are going to rival mine! A good problem to have.

She's a school teacher so it seems odd that she doesn't have a 403(b) option but seems like the 403(b) option is very similar to the 401(k) so it's a wash. In comparing her 401k and 457b accounts, the two benefits of the 457b over the 401k were the special 457(b) Catch-Up provision (doesn't really come into play until older/closer to retirement) and the ability to withdraw before age 59 1/2.
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Re: Affirm my logic - 457 over a 403b

Postby MN Finance » Thu Jan 31, 2013 4:04 pm

rr2 wrote:
MN Finance wrote:There's no downside to the 457b, and it should be just as portable to roll into an IRA if she separates from service with the employer.

This is not always true since not all 457b's are portable. In fact, my wife has one where you must take a distribution 1 year after you separate from service OR you have to roll it over into another qualified 457b plan. You cannot roll it into an IRA or a 401k or a 403b. The only positive is that such a required distribution does not have any penalties. Obviously, you have to pay taxes on the distribution.


It seems nearly impossible that the state 457 plan is not portable. Certainly there are some 457s, mostly private, that aren't
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