457 vs 403b

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cjniemiec
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457 vs 403b

Post by cjniemiec » Mon Nov 12, 2018 12:52 am

45 year old Illinois HS teacher - family of 5 - just became aware of 457 being an investment option....not sure how/why this dodged me for...20+ years....

Regardless, I have been working with HR to have Fidelity added as a 457 vendor (I currently use them for my 403B) - this should be up and running within the next month or so.

I consider myself a very committed saver - I and my wife max out our ROTHS and 403's yearly - and plan on doing the same with at least my 457.

OK - here are my questions:

1. I'm led to believe Fidelity will allow me to invest in individual stocks through my 457 - or mutual funds if I choose. Is anyone aware of a vendor offering this? All 403's are mutual fund only options. The added investment options seem too good to be true.

2. Why does it feel 457 Plans are a huge secret? I am confident no one knows about this option (or cares) at my school. I remember speaking to an Edward Jones rep years ago (for one year he was acting as our "advisor") and he reassured me there was no other retirement savings option we should be considering.

3. Why would anyone choose to invest in a 403B ahead of a 457? They are essentially the same thing, but the 457 plan offers greater flexibility with tapping into the money - correct? As an educator for 20+ years, all I have heard about is 403B.......why?????? 457 Plans are better options (unless, I suppose a specific district 457 plan options are poor - compared to their 403b options).

4. The 457 Plan allows "catch ups" - If I can afford .- why would I not try to max out "catching up"?

I would really appreciate some guidance from those that are in tune with 457 plans and get a clear understanding of how they involve them in their own personal finances. Thanks in advance for all your efforts/thoughts.

BarbBrooklyn
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Re: 457 vs 403b

Post by BarbBrooklyn » Mon Nov 12, 2018 2:28 am

Hey, it only took you 20 years! I've worked for my school system for 27 years and only found out that we're eligible for a 457 in addition to the 403b at the end of last year. You've got me beat by a mile!

The rules for the "catch up" on the 457 are complicated, but apparently they will allow you to double your $19K contribution in the last 3 years before retirement (I didn't find this out soon enough!)

In my case (NYC) the 457 plan has much added value which includes seminars by in-house CFAs on retirement planning, distributions, healthcare as well as the opportunity to meet with a CFA (who is not trying to sell you anything) and create a personalized financial plan for $25.00.

As for them being a secret, I agree; the estate planning attorney I consulted a while back had no idea what a 457 was.
BarbBrooklyn | "The enemy of a good plan is the dream of a perfect plan."

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celia
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Re: 457 vs 403b

Post by celia » Mon Nov 12, 2018 3:52 am

I don't know why you think 457s are a "secret". We've talked about them here as well as being publically available when I started working for a CA school district 25 years ago.

At least in California, both 403Bs and 457s choices contained primarily expensive annuities, offered by insurance companies. In 1974 the law was changed to allow mutual funds in 403Bs. It was hard to find a custodian that offered a range of mutual funds, and most of the funds that were offered had either loads or high ERs, as I recall.

I was one of many who asked Vanguard if they would offer 403b/457 plans. Vanguard responded that they would cost too much to offer to a small group of participants (compared to all the investors they had). I believe the plans require extra reporting by the custodian to show that the plan was compliant with regulations. The cost of this would then have to be passed onto all participants or all V investors, giving them slightly higher fees.

I would be surprised if Fidelity would participate for the same reason.

My "take" on why more teachers don't know about 457s is that most teachers would rather pay an advisor salesperson to handle their investments than learn to do it themselves.

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Re: 457 vs 403b

Post by Katietsu » Mon Nov 12, 2018 6:19 am

You were likely given appropriate advice. When you started your job, you could not double your tax deferred space by using a governmental 457 plan. When law changed to allow separate contribution limits for the 457b, my employer added the 457 option (in 2003 for me).

The 457 does allow withdrawals after separation from service with no penalty regardless of age. But, you must separate from service. On the other hand, the 403b plan has chosen to allow withdrawals after age 59.5 even if an employer is stilll working. So, the 457 plan would be better for someone leaving the job at 50 years old and the 403b would be better for a 60 year old who wants to go part time.

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CyclingDuo
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Re: 457 vs 403b

Post by CyclingDuo » Mon Nov 12, 2018 10:45 am

cjniemiec wrote:
Mon Nov 12, 2018 12:52 am
45 year old Illinois HS teacher - family of 5 - just became aware of 457 being an investment option....not sure how/why this dodged me for...20+ years....

Regardless, I have been working with HR to have Fidelity added as a 457 vendor (I currently use them for my 403B) - this should be up and running within the next month or so.

I consider myself a very committed saver - I and my wife max out our ROTHS and 403's yearly - and plan on doing the same with at least my 457.

OK - here are my questions:

1. I'm led to believe Fidelity will allow me to invest in individual stocks through my 457 - or mutual funds if I choose. Is anyone aware of a vendor offering this? All 403's are mutual fund only options. The added investment options seem too good to be true.
Yes, a brokerage account option is available in some 403b and 457b plans. Schwab is a common option, and happens to be the one available in two of our plans. Most charge a .5% administrative fee of assets for that brokerage window, so make sure to compare the available investments and the ER fees in the regular 403b/457b before moving into the brokerage account option.
cjniemiec wrote:
Mon Nov 12, 2018 12:52 am
2. Why does it feel 457 Plans are a huge secret? I am confident no one knows about this option (or cares) at my school. I remember speaking to an Edward Jones rep years ago (for one year he was acting as our "advisor") and he reassured me there was no other retirement savings option we should be considering.
The amount of education and advice that is provided for retirement plans through a school district could be described as minimal at best. Schools simply don't have the staffing required to make that a high priority on the list of goals to provide employees. On top of that, if you consider that many are also involved in a mandatory contribution to the pension/DFB plan, at some point the actual teacher salary runs out of ability to support both the pension/DFB contribution, and contributing to a 403b plus a 457b. Check out 403bwise.com for even more discussion on plans. Are your 403 and 457 plans voluntary, or do you get a match from your employer? In our state, they are completely voluntary due to the match being the pension/DFB that has the mandatory contribution from the employee.
cjniemiec wrote:
Mon Nov 12, 2018 12:52 am
3. Why would anyone choose to invest in a 403B ahead of a 457? They are essentially the same thing, but the 457 plan offers greater flexibility with tapping into the money - correct? As an educator for 20+ years, all I have heard about is 403B.......why?????? 457 Plans are better options (unless, I suppose a specific district 457 plan options are poor - compared to their 403b options).
457b is not a bad option at all - especially if one is planning on retiring at a younger age, but I would hesitate to label them "better options" than a 403b plan. As mentioned above, very few educators have the ability to fill both spaces based on their salaries until much later in their working careers when they are making more and any debt they carry is at a very low ratio compared to their income level. Or if they are a dual income household with enough salary between the couple to allow for filling both the 403b and the 457b spaces.
cjniemiec wrote:
Mon Nov 12, 2018 12:52 am
4. The 457 Plan allows "catch ups" - If I can afford .- why would I not try to max out "catching up"?
If you have enough salary to fill the space and qualify for the catch ups, why not? The only thing holding you back would be cash flow on the home front to meet all of your expenses (needs/wants/variables). If those are all met - have at it provided the investment choices, ER fees, and administrative fees are all within reason.
cjniemiec wrote:
Mon Nov 12, 2018 12:52 am
I would really appreciate some guidance from those that are in tune with 457 plans and get a clear understanding of how they involve them in their own personal finances. Thanks in advance for all your efforts/thoughts.
We were unable to utilize the 457b due to raising children, covering college educations, and our salaries could only cover the mandatory pension contributions (6.29% of salary from the employee with a 9.44% match from the employer) plus contributing 15-20% on top of that to our 403b's, and filling the Roth IRA space. We were finally able to max out both 403b's as salaries rose and child rearing costs subsided. This is the first year we were able to also max out one 457b on top of the other two plans (at ages 57 & 60 respectively). We could not have done that at your age of 45 on our salaries.

Certainly utilize your income to fill the spaces you can while striking a balance of having enough remaining to spend on your family of 5 to cover the expenses at home.
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Re: 457 vs 403b

Post by jharkin » Mon Nov 12, 2018 11:43 am

BarbBrooklyn wrote:
Mon Nov 12, 2018 2:28 am
As for them being a secret, I agree; the estate planning attorney I consulted a while back had no idea what a 457 was.
+2

My wife started a new job working for a public school last year, and they offer 403b & 457b. Besides the better flexibility of the 457 her plan also offers better low ER index fund options than most of the 403 providers (many of them are insurance and annuity companies).

So I urged her to sign up and max out the 457 first... but it has been a slog. We have spent literally months going back and forth between payroll (one little old lady at the town hall) and the provider just to get the paycheck deferral setup correctly. The level of difficulty involved for this simple task makes me suspect NO other town employees have ever actually used it..... :oops:

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cjniemiec
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Re: 457 vs 403b

Post by cjniemiec » Mon Nov 12, 2018 4:14 pm

Lots of helpful things shared - I appreciate your time and effort posting your thoughts.

403b's dominate the airwaves in terms of investment options for educators - it feels 457 plans are deserving of similar attention - especially if they offer a similar or smaller cost option to 403's. I'm not sure why this is, but I'm willing to bet my paycheck that I I would not find 5 other people in my district who know and/or contribute to a 457 Plan.

I agree there are a couple of threads on 457 plans here a Bogleheads - but the info is far from mainstream. Hopefully continued dialogue will help motivate others who are government employees and have the motivation to fund their retirement, to consider future contributions to a 457.

My district currently offers about 8 457 vendors - but they are all tied into annuities or mutual funds ....which I assume have uninviting ER's. For this reason I worked with HR to get Fidelity as an option - I'm waiting on the paperwork to be processed - but once it is all settled, that is the direction I'm headed.

As I believe I mentioned, both my wife and I are teachers - it is crazy concerning how many colleagues don't contribute a penny to their retirement - putting all their faith and trust (and hope) that their pensions still exist when they retire...and cover their expenses.

I on the other hand, have elected to live well below my means - save save save - and am positioning my family to live very comfortably in our retirement years.

Again - thanks for your thoughts on this topic.

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Re: 457 vs 403b

Post by Ron Ronnerson » Mon Nov 12, 2018 5:41 pm

I’m a teacher in the Bay Area and have had a 457b for several years. I went to a retirement presentation led by our union president not too long ago. She strongly advocated low-fee stock funds to balance the fixed income expected from pensions. She went over what types of products to avoid and which vendors provided good options that are available to us. Specifically, she recommended CalSTRS Pension 2 and Vanguard. While a 457b was mentioned briefly, the focus was on our 403b options. Apparently, out of the thousands of members in our union, only 40 people utilize the 457b.

The district I work for has good options available in both a 457b and 403b. I prioritize the 457b and only partially fund a 403b. The reason is the no-penalty clause of the 457b if separating from employer.

I think it would be good if teachers were aware of 457b accounts but that’s perhaps easier said than done. Many are not all that interested in learning about investing and something they’ve never heard of before might seem so mysterious that the message could be met with distrust, confusion, or tuning out the information all together. Despite that, I think it would still be good if the word got out.

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Re: 457 vs 403b

Post by Peter Foley » Mon Nov 12, 2018 5:51 pm

I would not be put off by a governmental 457b plan that offered annuities and mutual funds if some of the mutual funds offered low cost index funds. You really only need a couple good low cost options in a plan as you can fill out your desired asset allocation elsewhere (possibly Roth or taxable).
Last edited by Peter Foley on Mon Nov 12, 2018 11:31 pm, edited 1 time in total.

Determined
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Re: 457 vs 403b

Post by Determined » Mon Nov 12, 2018 8:50 pm

cjniemiec wrote:
Mon Nov 12, 2018 12:52 am
45 year old Illinois HS teacher - family of 5 - just became aware of 457 being an investment option....not sure how/why this dodged me for...20+ years....

Regardless, I have been working with HR to have Fidelity added as a 457 vendor (I currently use them for my 403B) - this should be up and running within the next month or so.

I consider myself a very committed saver - I and my wife max out our ROTHS and 403's yearly - and plan on doing the same with at least my 457.

OK - here are my questions:

1. I'm led to believe Fidelity will allow me to invest in individual stocks through my 457 - or mutual funds if I choose. Is anyone aware of a vendor offering this? All 403's are mutual fund only options. The added investment options seem too good to be true.

2. Why does it feel 457 Plans are a huge secret? I am confident no one knows about this option (or cares) at my school. I remember speaking to an Edward Jones rep years ago (for one year he was acting as our "advisor") and he reassured me there was no other retirement savings option we should be considering.

It depends where you are. There was a big push fir Ohio deferred Comp in my district quite a while ago, and the I was told bythe custodian of my 403b he advises everyone to use 457 first. We have realtively unappealing options for 403b. Additionally, I can change my 457 pretty much anytime I want. My district makes it extremely inconvenient to modify a 493b

3. Why would anyone choose to invest in a 403B ahead of a 457? They are essentially the same thing, but the 457 plan offers greater flexibility with tapping into the money - correct? As an educator for 20+ years, all I have heard about is 403B.......why?????? 457 Plans are better options (unless, I suppose a specific district 457 plan options are poor - compared to their 403b options).

Again, it depends where you are. I have heard places where 403b has better options.

4. The 457 Plan allows "catch ups" - If I can afford .- why would I not try to max out "catching up"?

I would really appreciate some guidance from those that are in tune with 457 plans and get a clear understanding of how they involve them in their own personal finances. Thanks in advance for all your efforts/thoughts.

Determined
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Re: 457 vs 403b

Post by Determined » Mon Nov 12, 2018 8:53 pm

BarbBrooklyn wrote:
Mon Nov 12, 2018 2:28 am
Hey, it only took you 20 years! I've worked for my school system for 27 years and only found out that we're eligible for a 457 in addition to the 403b at the end of last year. You've got me beat by a mile!

The rules for the "catch up" on the 457 are complicated, but apparently they will allow you to double your $19K contribution in the last 3 years before retirement (I didn't find this out soon enough!)
I would be interested in a link to this information, please.

In my case (NYC) the 457 plan has much added value which includes seminars by in-house CFAs on retirement planning, distributions, healthcare as well as the opportunity to meet with a CFA (who is not trying to sell you anything) and create a personalized financial plan for $25.00.

As for them being a secret, I agree; the estate planning attorney I consulted a while back had no idea what a 457 was.

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F150HD
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Re: 457 vs 403b

Post by F150HD » Mon Nov 12, 2018 9:15 pm

an issue I've read w/ some 457s and 403s is they do not allow ETF purchases. Is this standard most everywhere?

I wonder if this is more difficult b/c one can purchase partial shares of a mutual fund but only whole shares of an ETF so its a snag when $$ flows into the account to make an 'automatic' purchase.

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My district offers Fidelity and Vanguard for 403(b)

Post by Socrates » Mon Nov 12, 2018 9:26 pm

but really nothing for 457.......this has been the same for other 2 districts I have worked for (one was 4th largest SD in California).
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Re: 457 vs 403b

Post by Dottie57 » Mon Nov 12, 2018 9:49 pm

I thought I had read in this forum that 403b have better protection from creditors than 457.

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Re: 457 vs 403b

Post by willthrill81 » Mon Nov 12, 2018 10:45 pm

I too had no knowledge that 457 plans were offered at my employer until less than a year ago (that was after three years of service). I'm planning on retiring no later than age 55, so a 457 makes perfect sense for me for two reasons: (1) I can make withdrawals before age 59.5 and (2) it gives me significantly more tax-advantaged space than I would have otherwise.
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Re: 457 vs 403b

Post by doneat53 » Mon Nov 12, 2018 10:53 pm

I think there are institutional variants of both 457 and 403b but I'm not positive.

With that caveat in mind, I'm allowed to contribute to BOTH my 403b and my 457b such that max contribution for 457 is 18.5k + 6k (I'm over 50) and 403b is the same so for a total tax free contribution of 49k. I'm pretty sure contributions are independent at most places so it isn't "either or".

doneat

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Re: 457 vs 403b

Post by fposte » Mon Nov 12, 2018 10:56 pm

Determined wrote:
Mon Nov 12, 2018 8:53 pm
BarbBrooklyn wrote:
Mon Nov 12, 2018 2:28 am

The rules for the "catch up" on the 457 are complicated, but apparently they will allow you to double your $19K contribution in the last 3 years before retirement (I didn't find this out soon enough!)
I would be interested in a link to this information, please.
From the IRS here. I'm currently doing this.

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cjniemiec
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Re: My district offers Fidelity and Vanguard for 403(b)

Post by cjniemiec » Mon Nov 12, 2018 11:11 pm

Socrates28 wrote:
Mon Nov 12, 2018 9:26 pm
but really nothing for 457.......this has been the same for other 2 districts I have worked for (one was 4th largest SD in California).

My HS teacher wife came home today and said the same about her district....they do not offer a 457 plan option .....she has instructions to go back to her HR and find out what it takes to get a vendor up and running. Interesting how some districts have multiple options....and some have...none.

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cjniemiec
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Re: 457 vs 403b

Post by cjniemiec » Mon Nov 12, 2018 11:13 pm

willthrill81 wrote:
Mon Nov 12, 2018 10:45 pm
I too had no knowledge that 457 plans were offered at my employer until less than a year ago (that was after three years of service). I'm planning on retiring no later than age 55, so a 457 makes perfect sense for me for two reasons: (1) I can make withdrawals before age 59.5 and (2) it gives me significantly more tax-advantaged space than I would have otherwise.
Do you mind elaborating on point #2?

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cjniemiec
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Re: 457 vs 403b

Post by cjniemiec » Mon Nov 12, 2018 11:15 pm

doneat53 wrote:
Mon Nov 12, 2018 10:53 pm
I think there are institutional variants of both 457 and 403b but I'm not positive.

With that caveat in mind, I'm allowed to contribute to BOTH my 403b and my 457b such that max contribution for 457 is 18.5k + 6k (I'm over 50) and 403b is the same so for a total tax free contribution of 49k. I'm pretty sure contributions are independent at most places so it isn't "either or".

doneat
That is how I understand it - you are living the dream - maxing out on both .....and catching up. Hats off to you!

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Re: 457 vs 403b

Post by willthrill81 » Mon Nov 12, 2018 11:30 pm

cjniemiec wrote:
Mon Nov 12, 2018 11:15 pm
doneat53 wrote:
Mon Nov 12, 2018 10:53 pm
I think there are institutional variants of both 457 and 403b but I'm not positive.

With that caveat in mind, I'm allowed to contribute to BOTH my 403b and my 457b such that max contribution for 457 is 18.5k + 6k (I'm over 50) and 403b is the same so for a total tax free contribution of 49k. I'm pretty sure contributions are independent at most places so it isn't "either or".

doneat
That is how I understand it - you are living the dream - maxing out on both .....and catching up. Hats off to you!
Thanks. We're not quite maxing out everything yet because we're aggressively paying off our mortgage (<18 months left now :)). But once that goal is reached, we'll be maxing out my 401k (plus 15% of my gross pay going into a 401a), 457, HSA, and both Roth IRAs, all totaling right about 50% of my gross income. We're very blessed indeed.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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CyclingDuo
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Re: 457 vs 403b

Post by CyclingDuo » Tue Nov 13, 2018 12:38 am

cjniemiec wrote:
Mon Nov 12, 2018 11:13 pm
willthrill81 wrote:
Mon Nov 12, 2018 10:45 pm
I too had no knowledge that 457 plans were offered at my employer until less than a year ago (that was after three years of service). I'm planning on retiring no later than age 55, so a 457 makes perfect sense for me for two reasons: (1) I can make withdrawals before age 59.5 and (2) it gives me significantly more tax-advantaged space than I would have otherwise.
Do you mind elaborating on point #2?
Point two is easy. willthrill could max out more than just his 401k/403b at $18,500. Since he found out about his 457b, he could also max that out in addition to the 401k/403b.

You can max out a 403b at $18,500 for under age 50, and $24,500 for age 50 and over in 2018. You can also max out a 457b at $18,500 for under age 50, and $24,500 for age 50 and over in 2018. Those go up to $19K and $25K for 2019. Combine the two, and you could both max out two plans in each calendar year if your salaries would support it.

Throw in the pension contributions, your Roth IRA's, maybe even an HSA, plus some taxable investing - and the only limiting factor is the salary to work with to fill all of those spaces and still have enough to pay for the household expenses.

As I mentioned above, we are maxing out two 403b's, and one 457b this year to the tune of $24,500 each ($73,500 total) since we are over age 50. Throw in Roth IRA's on top of that along with the mandatory pension contribution into the 401a ($91,500 total for all of that in our situation) and well - we are up against the income fence due to our salaries and covering all the expenses on the home front to be able to do too much more in taxable as a result.

If you are both teachers, the potential would be 4 x $18,500 for 2018 ($74,000), and 4 x $19,000 for 2019 ($76,000) if you both maxed out the 403b and 457b plans where you each teach. Throw in IRA's for both of you for another $11K in 2018, $12K in 2019 - and you are well on your way if you have enough salary to do that.
Last edited by CyclingDuo on Mon Dec 10, 2018 6:49 am, edited 1 time in total.
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F150HD
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Re: 457 vs 403b

Post by F150HD » Tue Nov 13, 2018 6:48 am

________________

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Re: 457 vs 403b

Post by 2 bits » Tue Nov 13, 2018 8:04 am

cjniemiec wrote:
Mon Nov 12, 2018 12:52 am
this dodged me for...20+ years

2. Why does it feel 457 Plans are a huge secret?

3. Why would anyone choose to invest in a 403B ahead of a 457? They are essentially the same thing, but the 457 plan offers greater flexibility with tapping into the money - correct? As an educator for 20+ years, all I have heard about is 403B.......why?????? 457 Plans are better options (unless, I suppose a specific district 457 plan options are poor - compared to their 403b options).




I suppose getting an individual’s 403b started was enough of a hurdle for many people to get started. I also suspect many districts didn’t provide 457 options until many years after the 403b s.





I would really appreciate some guidance from those that are in tune with 457 plans and get a clear understanding of how they involve them in their own personal finances. Thanks in advance for all your efforts/thoughts.
When I really nailed down the significant difference of earlier access to my deferred funds I made the 457 a preference and maxed that with a bit extra in the 403.
Only during the last few years was I able to max out but that was when we had other money available from the sale of a rental. For many years we split savings between 403b IRA and TAXABLE accounts. Taxable savings was for spending in the years after separating service and before age 59 1/2 access to 403. Now we have to come up with a plan to shift 403 b and tIRA to Roth before RMDs. It makes me glad that not all moneys went to tax deferred.


Be glad you figured it out at 45, and spread the word a bit in your district.
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Re: 457 vs 403b

Post by Hikerds » Tue Nov 13, 2018 9:53 am

I work at a company that offers both 403b and 457. The investment options are exactly the same for both. I favor the 403b because my company offers a match for 403b contributions, but not for 457. Regardless, the plan is to max out contributions in both accounts.

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Re: My district offers Fidelity and Vanguard for 403(b)

Post by Socrates » Tue Nov 13, 2018 2:30 pm

My HS teacher wife came home today and said the same about her district....they do not offer a 457 plan option .....she has instructions to go back to her HR and find out what it takes to get a vendor up and running. Interesting how some districts have multiple options....and some have...none.
[/quote]

Let us know what she finds out. I talked to my district and they did say we could add the CalSTRS 457 plan, but it is limited and somewhat expensive. I'd rather just add Vanguard.
“Don't waste your time looking back. You're not going that way.” ― Ragnar Lothbrok.

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Re: My district offers Fidelity and Vanguard for 403(b)

Post by Ron Ronnerson » Tue Nov 13, 2018 4:39 pm

Socrates28 wrote:
Tue Nov 13, 2018 2:30 pm
Let us know what she finds out. I talked to my district and they did say we could add the CalSTRS 457 plan, but it is limited and somewhat expensive. I'd rather just add Vanguard.
I agree that CalSTRS 457b fees could be a bit lower but it's not terrible by any means. Vanguard Total Stock Market Fund is 0.27% in total fees.
https://www.calstrs.com/sites/main/file ... p2_fee.pdf

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@ Ron

Post by Socrates » Tue Nov 13, 2018 6:50 pm

yeah Total Market is not to bad, but I get it at the .02 (or whatever the expense now is) through my 403(b).


To answer the original question:
So each district is different, but my 403(b) is my first choice because they offer all of Fidelity funds with no tacked on expense (.25 through CalSTRS) and a nice array of Vanguard funds (not all of them). Their is a quarterly fee of $10 or something like that. So my first choice is to max my IRA, then 403(b) then would be the 457 which I am not sure I can get to yet. Again each district is different, but mine has poorer 457 choices. Luckily, the 403(b) options are good as I know that may not be the case for other districts.

I don't think many max or contribute to their 457s because they don't make that much money in education and if they even save at all, it is probably through the 403(b).
I was astonished how few saved even through their 403(b). I was the only employee who had asked about the 457 plan and in fact the info on their website was several years old with dead links. I contacted CalSTRS directly to see if they could be added as that was better than nothing and I felt the district may go that route since they use CalSTRS for the pension fund.
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CyclingDuo
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Re: My district offers Fidelity and Vanguard for 403(b)

Post by CyclingDuo » Tue Nov 13, 2018 8:15 pm

Ron Ronnerson wrote:
Tue Nov 13, 2018 4:39 pm
Socrates28 wrote:
Tue Nov 13, 2018 2:30 pm
Let us know what she finds out. I talked to my district and they did say we could add the CalSTRS 457 plan, but it is limited and somewhat expensive. I'd rather just add Vanguard.
I agree that CalSTRS 457b fees could be a bit lower but it's not terrible by any means. Vanguard Total Stock Market Fund is 0.27% in total fees.
That's not bad at all compared to a lot of 403b and 457b plans. One of our 403b plans and the one 457b we have at VALIC tack on .18% to the underlying Vanguard index fund fees as their method of gathering the administrative fees.

Example of what we pay at the 457b and 403b level for the Vanguard funds for the approximated Rick Ferri Core Four portfolio at VALIC...

Vanguard Institutional Index Fund (ER .22 - includes administrative fee)
Vanguard Mid Cap Index Institutional (ER .26 - includes administrative fee)
Vanguard Sm Cap Index Admiral (ER .27 - includes administrative fee)
Vanguard Total International Stock Index Fund Admiral (ER .30 - includes administrative fee)
Vanguard REIT Index Admiral (ER .30 - includes administrative fee)
Vanguard Total Bond Market Index Fund Admiral (ER .25 - includes administrative fee)
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willthrill81
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Re: @ Ron

Post by willthrill81 » Tue Nov 13, 2018 9:36 pm

Socrates28 wrote:
Tue Nov 13, 2018 6:50 pm
yeah Total Market is not to bad, but I get it at the .02 (or whatever the expense now is) through my 403(b).
That's a very good ER.

The ER for the S&P 500 in my 457 is .003%, three-tenths of one basis point. I'm content with that. :wink:
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Re: 457 vs 403b

Post by F150HD » Sat Dec 08, 2018 1:47 pm

ran across this today....dont recall hearing this discussed in the 457 threads I've read. Useful tidbit anyway.

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https://www.bankrate.com/retirement/per ... ment-plan/
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Re: 457 vs 403b

Post by Blake7 » Sat Dec 08, 2018 3:44 pm

F150HD wrote:
Sat Dec 08, 2018 1:47 pm
ran across this today....dont recall hearing this discussed in the 457 threads I've read. Useful tidbit anyway.
That would be because most government employees are receiving a defined benefit pension, which is typically around 2/3 funded by the employer. Not inexpensive. I’ve been working in government the last 15 years, and the 457 wasn’t made that visible. I never figured out why as they have some decent benefits (penalty-free withdrawal before 59.5 and 3-year pre-retirement catchup provision, in particular). I think the mentality is that because there’s a generous pension, there’s no need to save for retirement. I’m not taking that chance. Thanks to the 3-year pre-retirement catchup, I will have deferred $37K this year, $38K next year, and $38K (or whatever the caps allow) for 2020. Although I can only do the pre-retirement catchup because I didn’t fully contribute to the 457 in my earlier years (due to lack of awareness of the 457 earlier on), being we’re in our highest earning years at present, the extra tax deferral has been more than welcome. The biggest downside with 457s is they are not ERISA qualified, so they have less asset protection than a 401K.
Last edited by Blake7 on Fri Jan 11, 2019 1:55 pm, edited 1 time in total.

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Re: 457 vs 403b

Post by honduranhurricane » Sat Dec 08, 2018 11:54 pm

jharkin wrote:
Mon Nov 12, 2018 11:43 am
BarbBrooklyn wrote:
Mon Nov 12, 2018 2:28 am
As for them being a secret, I agree; the estate planning attorney I consulted a while back had no idea what a 457 was.
+2

My wife started a new job working for a public school last year, and they offer 403b & 457b. Besides the better flexibility of the 457 her plan also offers better low ER index fund options than most of the 403 providers (many of them are insurance and annuity companies).

So I urged her to sign up and max out the 457 first... but it has been a slog. We have spent literally months going back and forth between payroll (one little old lady at the town hall) and the provider just to get the paycheck deferral setup correctly. The level of difficulty involved for this simple task makes me suspect NO other town employees have ever actually used it..... :oops:
I went through exactly the same with BPS! I may be the other 457 user -).

After we married, I looked at wife options as BPS employee and found nothing about the 457 initially. Thankfully I kept at it and found the 457 (at the time, 457 had much better investment options, I think the 403 has improved over time). Setting up the paperwork was a bear. Have a friend who's wife is also a BPS employee was not aware of the 457 until I told him last year (he elected not to use it for whatever reason). They have been married for over 5 years. Its a shame the 457 is not better advertised.

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Re: 457 vs 403b

Post by trumpet83 » Sun Dec 09, 2018 6:46 am

I wonder if there is a difference in how the salespeople are compensated. Really, I would have had no idea that Fidelity was even an option for the 403b in my district because there's always some guy from Valic/AXA/ING in there with "free donuts" wanting to talk about 403b's. I had to look into things and find that Fidelity was an option. Of course, their fees are nothing compared to any of those 1% of account companies but I guess they don't have to buy me donuts. So, for 1% account fee someone will show up and bring food whereas for minimal cost like both Fidelity and my 457 provider you have to go find them.

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Re: 457 vs 403b

Post by bob60014 » Sun Dec 09, 2018 8:09 am

"2. Why does it feel 457 Plans are a huge secret?"

I think the blame here may be on the OP's HR dept. I retired from a suburban Chicago local government agency and my HR has yearly benefit fairs with the 457 plan, ICMA, highlighted. This along with talking to senior employees who talked of it virtues, made it a easy decision to enroll early on. Luckily my agency was proactive with all benefits, perhaps knowing the long term tenuous position of the state.

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Re: My district offers Fidelity and Vanguard for 403(b)

Post by cusetownusa » Sun Dec 09, 2018 9:54 am

cjniemiec wrote:
Mon Nov 12, 2018 11:11 pm
Socrates28 wrote:
Mon Nov 12, 2018 9:26 pm
but really nothing for 457.......this has been the same for other 2 districts I have worked for (one was 4th largest SD in California).

My HS teacher wife came home today and said the same about her district....they do not offer a 457 plan option .....she has instructions to go back to her HR and find out what it takes to get a vendor up and running. Interesting how some districts have multiple options....and some have...none.
Not sure what state you are in but we went through something similar with my wife’s district (in NYS). Due to this site we became aware of the 457b and inquired with her district. They had no clue what it was and said it’s not an option. I looked into it a bit more an learned that all they need is to contact the NYS deferred comp board and fill out an application to get the district added as a 457 participant. Once we educated the correct people at the district it was then added easily. I’m willing to bet we are the only ones that contribute to it let alone max it out.

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Re: 457 vs 403b

Post by Dug » Sun Dec 09, 2018 10:08 am

I am the CFO of a CA public school district. 403b have many easy options for direct enrollment with Vanguard and Fidelity. When I was hired, our 457b plans only had donut offering high fee annuity providers. I found out Vanguard unfortunately does not offer 457b plans but Fidelity does. I worked with our 3rd party administrator to get Fidelity into our District. Note, to add Fidelity, we needed at least one particiant. So now I max out my 403b with Vanguard and my 457b with Fidelity. FYI, HR doesnt usually spearhead this type of change, business services does.

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Re: 457 vs 403b

Post by jrmillions » Sun Dec 09, 2018 8:40 pm

I am a public employee and contribute to a 457b. It does offer Vanguard Large, Medium and Small Cap Index funds. It also has the Vanguard Total Bond fund. The fees are very low. It is through Nationwide Insurance.

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cjniemiec
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Re: 457 vs 403b

Post by cjniemiec » Tue Dec 18, 2018 11:09 pm

Thank you to everyone who shared their thoughts/information - it helps fill a number of gaps in understanding why so few people are aware of 457 plans who are eligible to contribute to them.

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Re: 457 vs 403b

Post by StoopieHippo » Wed Dec 19, 2018 12:22 am

Just wondering as I'm looking to fully fund my 403b and my 457 in 2020 after my student loans are completed... how does the 457 affect the pension, if at all? Anyone know?

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Re: 457 vs 403b

Post by willthrill81 » Wed Dec 19, 2018 12:47 am

StoopieHippo wrote:
Wed Dec 19, 2018 12:22 am
Just wondering as I'm looking to fully fund my 403b and my 457 in 2020 after my student loans are completed... how does the 457 affect the pension, if at all? Anyone know?
What pension are you referring to, specifically? I'm not aware that elective contributions on your part have any impact at all on a defined-benefit plan (i.e. pension).
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Re: 457 vs 403b

Post by trumpet83 » Wed Dec 19, 2018 6:35 am

I’m a teacher so I have a 403 and 457 plus a state pension I pay into. Assuming this is the kind of arrangement you are referring to, these accounts don’t affect the pension at all. Everyone in the district pays into the pension at the same percentage and results will be the same. If anything, I think it’s another argument for a 457 since if you worked less than 30 years (or whatever the required years are) at your job you still wouldn’t receive that pension until your full retirement age.

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Re: 457 vs 403b

Post by StoopieHippo » Wed Dec 19, 2018 11:47 pm

willthrill81 wrote:
Wed Dec 19, 2018 12:47 am
StoopieHippo wrote:
Wed Dec 19, 2018 12:22 am
Just wondering as I'm looking to fully fund my 403b and my 457 in 2020 after my student loans are completed... how does the 457 affect the pension, if at all? Anyone know?
What pension are you referring to, specifically? I'm not aware that elective contributions on your part have any impact at all on a defined-benefit plan (i.e. pension).
Huh for some reason, I always thought my state pension would be decreased if I put into the 457. I had planned on maxing it out anyway, as the difference is a few hundred bucks a month and I can live with that for tax-free growth, but YAY NO DECREASE! :)

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Re: 457 vs 403b

Post by StoopieHippo » Wed Dec 19, 2018 11:50 pm

trumpet83 wrote:
Wed Dec 19, 2018 6:35 am
I’m a teacher so I have a 403 and 457 plus a state pension I pay into. Assuming this is the kind of arrangement you are referring to, these accounts don’t affect the pension at all. Everyone in the district pays into the pension at the same percentage and results will be the same. If anything, I think it’s another argument for a 457 since if you worked less than 30 years (or whatever the required years are) at your job you still wouldn’t receive that pension until your full retirement age.
I was wondering though since my pension is calculated as 2% x avg monthly pay (avg'd over 60mo of highest grossing timeframe) x service credit years that deferring any take home pay would decrease my pension. I suppose not, from what you're saying?

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Re: 457 vs 403b

Post by giesen5 » Thu Dec 20, 2018 3:05 am

Another link with interesting conversation regarding 457 and 403.

viewtopic.php?f=1&t=183188&p=3482315#p3482315

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F150HD
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Re: 457 vs 403b

Post by F150HD » Thu Dec 20, 2018 6:26 am

StoopieHippo wrote:
Wed Dec 19, 2018 11:50 pm
trumpet83 wrote:
Wed Dec 19, 2018 6:35 am
I’m a teacher so I have a 403 and 457 plus a state pension I pay into. Assuming this is the kind of arrangement you are referring to, these accounts don’t affect the pension at all. Everyone in the district pays into the pension at the same percentage and results will be the same. If anything, I think it’s another argument for a 457 since if you worked less than 30 years (or whatever the required years are) at your job you still wouldn’t receive that pension until your full retirement age.
I was wondering though since my pension is calculated as 2% x avg monthly pay (avg'd over 60mo of highest grossing timeframe) x service credit years that deferring any take home pay would decrease my pension. I suppose not, from what you're saying?
AH, I see your question. Not sure it was quite clear above (to me).

Your thought was => If you are deferring income to a 457, that lowers your net paycheck so that would decrease the overall average the pension is based on. (Unless I am misunderstanding what you mean)

I am guessing the pension is calculated based on gross pay? as the deductions are taken from your gross paycheck? so even if one deferred every penny of their paycheck (somehow) it wouldn't affect ones pension average.

Maybe someone else can confirm this here.

cusetownusa
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Re: 457 vs 403b

Post by cusetownusa » Thu Dec 20, 2018 10:11 am

StoopieHippo wrote:
Wed Dec 19, 2018 11:50 pm
trumpet83 wrote:
Wed Dec 19, 2018 6:35 am
I’m a teacher so I have a 403 and 457 plus a state pension I pay into. Assuming this is the kind of arrangement you are referring to, these accounts don’t affect the pension at all. Everyone in the district pays into the pension at the same percentage and results will be the same. If anything, I think it’s another argument for a 457 since if you worked less than 30 years (or whatever the required years are) at your job you still wouldn’t receive that pension until your full retirement age.
I was wondering though since my pension is calculated as 2% x avg monthly pay (avg'd over 60mo of highest grossing timeframe) x service credit years that deferring any take home pay would decrease my pension. I suppose not, from what you're saying?
Its based on gross pay, not net.

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Re: 457 vs 403b

Post by jharkin » Thu Dec 20, 2018 1:12 pm

You'll have to look into the specific language of your pension plan, but I would be suprised if 457 contributions had any effect - as I suspect they are taking money out for the pension regardless of what you put into 457.

I know in the case of Massachusetts, most public school employees are in the MTRS pension plan and its structured such that they contribute 11% from each paycheck, have to work a minimum of 10 years to earn a payout, and then payouts are based on a % of final salary on a sliding scale based on both how many years where worked & what age you draw (anywhere from 60 to 67). The payout ranges from as little as 15% (10 years of service and drawing at 60) up to 80% (35 years of service drawing at 67). NOTE: These the rules for recent hires, long term employees are grandfathered into different arrangements.

Similarly, Mass towns that participate in the governmental 457b use a state plan called SMART. This is completely separate from both the MTRS pension and any 403b the town might offer.

The only thing that gets "eliminated" is SS... since employees covered under the MTRS pension are FICA-SS tax exempt and don't pay in (+WEP rules come into effect if they had SS earnings from prior employment)

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Re: 457 vs 403b

Post by JimMolony » Thu Dec 20, 2018 1:33 pm

Blake7 wrote:
Sat Dec 08, 2018 3:44 pm
F150HD wrote:
Sat Dec 08, 2018 1:47 pm
ran across this today....dont recall hearing this discussed in the 457 threads I've read. Useful tidbit anyway.
That would be because most government employees are receiving a defined benefit pension, which is typically around 2/3 funded by the employer. Not inexpensive. I’ve been working in government the last 15 years, and the 457 wasn’t made that visible. I never figured out why as they have some decent benefits (penalty-free withdrawal before 59.5 and 3-year pre-retirement catchup provision, in particular). I think the mentality is that because there’s a generous pension, there’s no need to save for retirement. I’m not taking that chance. Thanks to the 3-year pre-retirement catchup, I will have deferred $37.5K this year, $38K next year, and $38K (or whatever the caps allow) for 2020. Although I can only do the pre-retirement catchup because I didn’t fully contribute to the 457 in my earlier years (due to lack of awareness of the 457 earlier on), being we’re in our highest earning years at present, the extra tax deferral has been more than welcome. The biggest downside with 457s is they are not ERISA qualified, so they have less asset protection than a 401K.
Can you explain the 3-year pre-retirement catchup provision? Currently maxing out 403b and 457b for my wife (teacher). Have not run into any information on a catchup. We are both over 50 and able to save $24.5k for each accountin 2018, goes up to $25k for 2019. Thanks for the help

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Michael Patrick
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Re: 457 vs 403b

Post by Michael Patrick » Thu Dec 20, 2018 1:46 pm

I work for the state and have been contributing to a 457 since I started. It was mentioned in my very first benefits presentation. I'm nowhere near maxing it out, just don't have the spare income, but with 18 years of regular contributions I've managed to build up a decent balance. I'm maxed on my Roth IRA, and then contribute to the 457 to bring my total contributions between the two to around 12% of my gross pay. They recently started offering a Roth option in the 457, which I've taken advantage of.

The 457 is part of my three-legged stool retirement plan - social security, pension, and my own retirement savings. I'll be ok if any one of the legs is kicked out, two would be tougher to manage.

My wife worked for the University for a number of years (she has since left to work for a non-profit with a SIMPLE). The University offered both a 403 and a 457. For whatever reason, they pushed the 403 much harder. We went with the 457, and ultimately rolled it over into her Vanguard IRA when she left.

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