457 or 403(b)

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jpelder
Posts: 1106
Joined: Mon Jan 26, 2015 2:56 pm
Location: Concord, NC

457 or 403(b)

Post by jpelder »

Hi folks,
I just started this year as a public school teacher in North Carolina, and I'm trying to sort out my retirement planning. Wife and I are currently maxing Roth IRAs (Mine at Vanguard, hers at PNC [her parents are giving this funding in lieu of other birthday/Christmas presents!]) our emergency fund just got fully funded by our 2014 tax refund, and all other savings is currently directed toward building a house downpayment (aiming for $50,000, currently up to $30,000). I also have a pension.
My question is this: her job does not offer a 401(k), but mine offers an assortment of 403(b) and 457 plans. Should we choose the 403(b), 457, some combination of both, or does it just depend on the plan providers? With her current job, we probably can only afford to max Roth IRAs and put another 2-3 thousand per year into the other plan (which works out to about 20% of total income, not including what's being taken out for my pension plan)

Summary of the plan providers
403(b)
An assortment of insurance peddlers offering annuities (which I'll ignore)
TIAA-CREF
Voya
NC 401(k) plan, run by treasurer, has an assortment of mutual fund choices with ER similar to VG (e.g. 0.16% for an S&P 500 Index)

457
Another assortment of insurance peddlers and their annuities
State 457 plan, offers same investment choices as state 401(k)
Twins Fan
Posts: 2775
Joined: Fri Mar 08, 2013 12:02 pm

Re: 457 or 403(b)

Post by Twins Fan »

You will probably have to list all the funds and options available to you, to get real good recommendations. But, it sounds like they're pretty similar across the accounts.

The 457 being a state plan (government plan) is a good thing. There's some sort of private 457 plan out there and that's not as good... A good thing about a govt. 457 plan is that if you retire early before required withdrawal age you can make withdrawals without worry of any penalties. Yes, one can withdraw from 401k and such early also and avoid penalties, but it's too easy with the 457 as they are designed that way. When do you think you would retire... early or no?

Do you get any sort of match in any of the plans? That would weigh into which to use.

So, it depends... is the answer for now. :happy
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Peter Foley
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Joined: Fri Nov 23, 2007 9:34 am
Location: Lake Wobegon

Re: 457 or 403(b)

Post by Peter Foley »

I know this is a long way off, but if you were considering retiring before age 59.5 (many school teachers do), the 457 is a slight better option because funds can be withdrawn w/o penalty upon separation. There are some provisions for early withdrawal from a 403b, but I believe certain criteria must be met.

403b do have the advantage of being able to take out loans - a provision I'm not sure is offered in your state's 457 plan.
NHRATA01
Posts: 654
Joined: Sat Oct 22, 2011 1:57 pm
Location: New York City area

Re: 457 or 403(b)

Post by NHRATA01 »

I would see what options the state 457 offers. I enrolled my wife in the NYS which has several Vanguard index funds to meet my asset allocation requirements, so I was very happy with those offerings. Her 403b on the other hand was atrocious with nothing but life insurance companies. I see yours at least offers TIAA-CREF which is generally well regarded on the forums as far as offering low expenses.

www.403bwise is a good reference site BTW.
gwrvmd
Posts: 820
Joined: Wed Dec 02, 2009 7:34 pm
Location: Calabash NC

Re: 457 or 403(b)

Post by gwrvmd »

Peter Foley
Some 403(b)s have the DISADVANTAGE of allowing loans. That option significantly increases the cost of the plan and often gets participants in financial trouble. A 403(b) is a retirement plan not a payday or car title lender.......Gordon
Disciple of John Neff
Sportswhiz00
Posts: 163
Joined: Mon Aug 18, 2014 8:04 pm

Re: 457 or 403(b)

Post by Sportswhiz00 »

The one potential issue with school teachers and their plans is that they commonly teach in the same school for 30, 40, even 50 years, which means the money you contribute is really is completely locked up for a long time (subject to loan provisions); compare to a private sector employer, where most people leave jobs every few years, roll to an IRA and then have access/flexibility. (Yes, I know everybody is going to say that it's a retirement account that you shouldn't need to touch, but liquidity is never a bad thing.) The 457 alleviates this somewhat because as others have noted if she leaves she can take it out penalty free. Still, if she doesn't leave until she retires, well the penalty free withdrawal on termination does no good if you can't even access the money when you need it. Just food for thought.
Ron Ronnerson
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Joined: Sat Oct 26, 2013 6:53 pm
Location: Bay Area

Re: 457 or 403(b)

Post by Ron Ronnerson »

I'm a public school teacher in CA and have good investment choices in both a 403b and a 457b. I invest in a 457b because of the no penalty provision (if separated from employer). If all else is equal, I'd favor the 457b.

In my case, the overall expense ratio is 0.29% to hold Vanguard Total Stock Market fund. Most of this (0.25%) goes to Voya and the rest to Vanguard. In the past, my 457b was serviced by TIAA-CREF.To hold the exact same investment, I was paying 0.37%. Both TIAA-CREF and Voya are worth checking out as their fees may be reasonable and they could offer some good fund choices.
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