457b Question

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Topic Author
nfs
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Joined: Wed Jan 22, 2014 3:32 pm

457b Question

Post by nfs »

I have a 401a, 403b and 457b at work. My spouse and I have a sizable age difference, so we preferentially max out his retirement accounts first so that we'll have the opportunity to access to more money sooner should we need it. I am wondering if we should then prioritize my 457b before the 403b. Here is my reasoning, though so far Fidelity has not been able to confirm for me if this works (maybe someone here will have some insight?)...
  • 457b can be withdrawn upon separation from employer or left in place
  • 457b does not incur at 10% penalty if withdrawn before age 59 1/2
  • Increases the number of retirement $$ we can put in place per year, but doesn't tie them to my retirement age
I'm thinking I can leave the 457b account as is and then it's an option for us to take distributions from it really at any point once I leave my job. Does my reasoning make sense?
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Dutch
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Re: 457b Question

Post by Dutch »

Is this a governmental 457b, or do you work for a non-profit?
Topic Author
nfs
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Re: 457b Question

Post by nfs »

I'm not sure and I haven't actually seen that on any paperwork. BUT, I work for a university that receives some state funding. I'm guessing it's governmental, it seems to fall along those lines when I've read other things.
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retiredjg
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Re: 457b Question

Post by retiredjg »

It's not clear what you are asking. Can you try again?
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Peter Foley
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Re: 457b Question

Post by Peter Foley »

I have a government 457b, as does my wife. The three facts you list are all correct with respect to government 457bs. If that is indeed what you have, I would fund that before funding a 403b as long as it did not have high expense ratios. You will have more flexibility in terms of withdrawals at an early age. (Yes, I am aware of early withdrawal provisions related to 403bs.)

Some individuals who have access to both are employees of public colleges and universities. (That was the case of my wife who had access to both.)
Topic Author
nfs
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Re: 457b Question

Post by nfs »

I want to make sure that I am correct in thinking that I will be able tof make withdrawals anytime after separation from the university, regardless of my age. The fidelity rep I spoke with didn't seem to have much information about withdrawals post separation.
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retiredjg
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Re: 457b Question

Post by retiredjg »

nfs wrote:I want to make sure that I am correct in thinking that I will be able tof make withdrawals anytime after separation from the university, regardless of my age. The fidelity rep I spoke with didn't seem to have much information about withdrawals post separation.
Yes, that is correct. There is no penalty, but you will owe tax at the time of your next tax filing.

The money in your 403b is also available if you retire in or after the year in which you reach 55. In order to do that, you have to leave the money in the 403b. If you roll it to an IRA, the age 59.5 rule goes into effect.

Even your IRA money becomes available if you are willing to jump through some hoops. Research SEPP for information on that.
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nfs
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Re: 457b Question

Post by nfs »

Thank you for the information! That's very helpful, I just wanted to make sure that's the case so that I'm putting money into things that are the easiest to pull money out of later. Hubs and I have a 20 year age difference, so we certainly have to be strategic in where we prioritize putting our contributions.
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House Blend
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Re: 457b Question

Post by House Blend »

^With a 20 year age difference, I can see more than one strategy for prioritizing the filling of tax-advantaged accounts.

For example, suppose you are a typical Boglehead over-saver, and

A. expect to have far more assets in retirement than you need. (And hope to pass on the excess to your [grand]children.) That calls for postponing RMDs as long as possible; one should prioritize maxing out the younger one's retirement accounts first. (All else being equal, such as fund selection, matching contributions, etc.)

On the other hand, if you are a Boglehead over-saver, and

B. hope to retire as soon as it is remotely feasible, then you should prioritize maxing out the older one's retirement accounts for easy access. (And as rjg points out, this access is more or less immediate for the 457b, and typically age 55 for 401a/401k/... etc.)

For added complexity, consider the possibility that older and younger do not plan to retire at the same time.

In my experience, many folks with access to a 401a+403b+457b at work are in highly fulfilling low-stress jobs and more likely to join Team A than Team B.

I bring this up in case you are, say, age 25, and unsure of the team you are on. If you are age 50, you probably already know.
Topic Author
nfs
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Re: 457b Question

Post by nfs »

House Blend you bring up some good points.

We're a new second marriage and recovering financially from divorces while sending a string of kids through college for the next 10 years. Option B isn't totally going to work for us, though part of the puzzle is that we are planning for me to leave my job in a year or two (I'm 32 and hoping to have a kiddo of my own).

Currently there is more $$ in my retirement accounts than my spouse's. So we definitely need to prioritize saving into his accounts. We are attempting to max out in as many places as we can since we are playing catch up. Obviously we'll want to leave money in any retirement accounts as long as possible, but we want to make sure it's there just in case!
MN Finance
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Re: 457b Question

Post by MN Finance »

457: can't access money in any way for any reason prior to separation of service, but can withdraw at any age without penalty after separation.

403: can access money while still employed via a hardship withdrawal or loans, or attainment of age 59.5. But normal withdrawals have a penalty before 59.5 (or the 55 issue mentioned).
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