403B vs 457B

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azianbob
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403B vs 457B

Post by azianbob » Wed Nov 13, 2019 8:15 pm

Hello, the wife recently got a job at a university so debating which one to prioritize. There is no matching in either one.

I have been reading around and it seems the 457B lets you withdraw anytime, unless you are still with the university, whereas the 403B you have to be 59.5 to withdraw but can do so if still working. Both seem portable.

Is there one we should prioritize contributing to over the other?

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Peter Foley
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Re: 403B vs 457B

Post by Peter Foley » Wed Nov 13, 2019 8:20 pm

The 457b plan is more flexible in terms of withdrawals w/o penalty. This is a factor should you choose to retire early. There are also some catch up provisions in one's last few years of employment under certain circumstances with a 457b.

If the investment options are similar and fund costs are similar I'd go the 457b route.

My wife had access to both plans with her university employment and was able to contribute to both at the same time.

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azianbob
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Re: 403B vs 457B

Post by azianbob » Wed Nov 13, 2019 8:32 pm

Thanks, currently we cannot maximize both, so I just wanted to know which one to start with if there was an advantage over the other. I believe they have the same stable of funds but I can look into that.

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Re: 403B vs 457B

Post by Compound » Wed Nov 13, 2019 8:37 pm

Is the 457b a “governmental” or “non-governmental” plan? If “non-governmental,” prioritize the 403b (assuming there isn’t a massive difference in fees across plans).

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Socrates
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Re: 403B vs 457B

Post by Socrates » Wed Nov 13, 2019 8:40 pm

Are the investment companies the same?

For example, Vanguard is often associated with 403(b), but not 457 plan. Sometimes providers for 457 are third party such as Aspire and have a fee.
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Clever_Username
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Re: 403B vs 457B

Post by Clever_Username » Wed Nov 13, 2019 9:00 pm

I have access to both and a good fund family in both. This is relevant, but mine is a governmental 457. I prioritize the 457, although I anticipate maxing out both annually, so I don't know if that'll help you.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

fourwheelcycle
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Re: 403B vs 457B

Post by fourwheelcycle » Wed Nov 13, 2019 9:19 pm

Peter Foley wrote:
Wed Nov 13, 2019 8:20 pm
If the investment options are similar and fund costs are similar I'd go the 457b route.
Really? Maybe there are different types of university 457b plans, but at my wife's college employer her 457b balance is actually deferred income, which remains a general asset of the college and cannot be transferred to a rollover IRA when she retires. If her college ever became insolvent, which will not happen, her 457b funds would be at risk to be forfeited as part of any settlement with the college's creditors.

We took advantage of her college's 457b plan because it allows her to defer another $19K of income each year in addition to her 403b plan. We do realize there is some risk her money could be forfeited, but we perceive zero risk her college will ever become insolvent. The biggest hassle for us is that she can never roll her 457b money out of the college's custodial account (at Fidelity) to her rollover IRA account (at Vanguard).

My wife is not at the University of Rochester, but here is a summary of their 457b plan, which sounds similar to my wife's employer's plan:

https://www.rochester.edu/working/hr/be ... ment/457b/

infotrader
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Re: 403B vs 457B

Post by infotrader » Wed Nov 13, 2019 11:28 pm

My wife has both and she is 61 now, and she has been with the same univ. for years.
Everything was fine until last year when she wanted to move some money to IRA so that she could do in service roth IRA conversion.
She could do that with her 403 (after 59 1/2) but not with 457: she has to either retire or wait until 70.
So, in her case, 403 is better.

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Re: 403B vs 457B

Post by csmath » Thu Nov 14, 2019 12:58 am

I have a few questions that I believe are relevant to the OP also. Are the following statements true for non-Roth version?

1) Both 403b and 457b governmental plans are never taxed by the State if contributions are made from a payroll deductions.
2) #1 is true in only some states, none, or all.
3) Payroll deduction contributions are after-FICA but before State & Federal.
4) Distributions are only taxed Federally?

If the above are always/sometimes State-Tax free, what about the Roth versions of them?

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Re: 403B vs 457B

Post by Clever_Username » Fri Nov 15, 2019 12:03 pm

fourwheelcycle wrote:
Wed Nov 13, 2019 9:19 pm
Peter Foley wrote:
Wed Nov 13, 2019 8:20 pm
If the investment options are similar and fund costs are similar I'd go the 457b route.
Really? Maybe there are different types of university 457b plans, but at my wife's college employer her 457b balance is actually deferred income, which remains a general asset of the college and cannot be transferred to a rollover IRA when she retires. If her college ever became insolvent, which will not happen, her 457b funds would be at risk to be forfeited as part of any settlement with the college's creditors.
Is your wife at a public or private university, assuming you can answer this without revealing too much personal information?

Non-governmental organization 457s are different than governmental 457s.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

fourwheelcycle
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Re: 403B vs 457B

Post by fourwheelcycle » Fri Nov 15, 2019 12:31 pm

Clever_Username wrote:
Fri Nov 15, 2019 12:03 pm

Is your wife at a public or private university, assuming you can answer this without revealing too much personal information?
Private college.

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Re: 403B vs 457B

Post by Clever_Username » Fri Nov 15, 2019 4:36 pm

fourwheelcycle wrote:
Fri Nov 15, 2019 12:31 pm
Clever_Username wrote:
Fri Nov 15, 2019 12:03 pm

Is your wife at a public or private university, assuming you can answer this without revealing too much personal information?
Private college.
That's going to be the difference then. I forget the reasons for the difference. When I was at a private (non-government) school, even being able to contribute to the 457 required being sufficiently senior (which I wasn't), and even then, the rules for when one could access it were different than they are for the 457 at the public school where I teach now.
"What was true then is true now. Have a plan. Stick to it." -- XXXX, _Layer Cake_ | | I survived my first downturn and all I got was this signature line.

retire2022
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Re: 403B vs 457B

Post by retire2022 » Sat Nov 16, 2019 11:01 am

csmath wrote:
Thu Nov 14, 2019 12:58 am
I have a few questions that I believe are relevant to the OP also. Are the following statements true for non-Roth version?

1) Both 403b and 457b governmental plans are never taxed by the State if contributions are made from a payroll deductions.
2) #1 is true in only some states, none, or all.
3) Payroll deduction contributions are after-FICA but before State & Federal.
4) Distributions are only taxed Federally?

If the above are always/sometimes State-Tax free, what about the Roth versions of them?
In NYS traditional 401k, 403b, 457 and traditional IRA up to 20K is exempt from NYS taxes Roths in NYS are exempt from all NYS taxes at withdrawals; in New Jersey all 401, 403, 457 and all Roth accounts are taxed in that state at withdrawals so it depends on which state you live.

here is article link from Kiplinger on which states do not tax retirement accounts:

https://www.kiplinger.com/slideshow/ret ... index.html

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Peter Foley
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Re: 403B vs 457B

Post by Peter Foley » Sat Nov 16, 2019 3:04 pm

Just to clarify. My wife worked at a public university. My original answer should have specified that all things being equal between the 403b and the 457b, I would recommend the 457b route if the 457b is a public 457b.

retiredjg
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Re: 403B vs 457B

Post by retiredjg » Sat Nov 16, 2019 5:00 pm

azianbob wrote:
Wed Nov 13, 2019 8:15 pm
Hello, the wife recently got a job at a university so debating which one to prioritize. There is no matching in either one.

I have been reading around and it seems the 457B lets you withdraw anytime, unless you are still with the university, whereas the 403B you have to be 59.5 to withdraw but can do so if still working. Both seem portable.

Is there one we should prioritize contributing to over the other?
All things (like expenses) being equal, I would choose the 457 because she can withdraw any time after leaving that employment. With the 403b, she can only withdraw after age 59.5.

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Re: 403B vs 457B

Post by csmath » Sat Nov 16, 2019 6:42 pm

retire2022 wrote:
Sat Nov 16, 2019 11:01 am
csmath wrote:
Thu Nov 14, 2019 12:58 am
I have a few questions that I believe are relevant to the OP also. Are the following statements true for non-Roth version?

1) Both 403b and 457b governmental plans are never taxed by the State if contributions are made from a payroll deductions.
2) #1 is true in only some states, none, or all.
3) Payroll deduction contributions are after-FICA but before State & Federal.
4) Distributions are only taxed Federally?

If the above are always/sometimes State-Tax free, what about the Roth versions of them?
In NYS traditional 401k, 403b, 457 and traditional IRA up to 20K is exempt from NYS taxes Roths in NYS are exempt from all NYS taxes at withdrawals; in New Jersey all 401, 403, 457 and all Roth accounts are taxed in that state at withdrawals so it depends on which state you live.

here is article link from Kiplinger on which states do not tax retirement accounts:

https://www.kiplinger.com/slideshow/ret ... index.html
Thank you for the info and the link. I'm still unsure about points #1 - #3 though as I am asking about contributions. Maybe I should take this to another thread as to not highjack it.

retire2022
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Re: 403B vs 457B

Post by retire2022 » Fri Nov 29, 2019 8:38 pm

op make sure your 403b is low fee and does not have high surrender charges

7:30 minutes audio the NGPF podcast discuss this

https://www.ngpf.org/blog/podcasts/ngpf ... 3bwiseorg/

retiredjg
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Re: 403B vs 457B

Post by retiredjg » Sat Nov 30, 2019 7:26 am

retire2022 wrote:
Fri Nov 29, 2019 8:38 pm
op make sure your 403b is low fee and does not have high surrender charges

7:30 minutes audio the NGPF podcast discuss this

https://www.ngpf.org/blog/podcasts/ngpf ... 3bwiseorg/
I often find it hard to sit still for podcasts, but this one is really informative on many issues. Thanks for the link.

retire2022
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Re: 403B vs 457B

Post by retire2022 » Sat Nov 30, 2019 10:43 am

retiredjg wrote:
Sat Nov 30, 2019 7:26 am
retire2022 wrote:
Fri Nov 29, 2019 8:38 pm
op make sure your 403b is low fee and does not have high surrender charges

7:30 minutes audio the NGPF podcast discuss this

https://www.ngpf.org/blog/podcasts/ngpf ... 3bwiseorg/
I often find it hard to sit still for podcasts, but this one is really informative on many issues. Thanks for the link.
If you think that was informative wait to you listen to this! :mrgreen:

Listen to this story Janitor who has 403b and is a millionaire and cleans up on his 403b

https://teachandretirerich.libsyn.com/e ... p-his-403b

more stories on 403b by hosts Dan Otter & Scott Dauenhauer, bloggers on teach and retire rich

https://teachandretirerich.libsyn.com/

Edit OP checkout the wiki on bogleheads 457


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

Dan & Scott podcast on what is a 457(b), 35 minutes

https://teachandretirerich.libsyn.com/the-457b-plan-63

and on 403b
https://www.bogleheads.org/wiki/403(b)

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azianbob
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Re: 403B vs 457B

Post by azianbob » Thu Dec 05, 2019 12:52 pm

Thanks for all the info. I think we will start with the 457B and then move to the 403B if we want to invest more.

The 457B is less flexible while working. You cannot withdrawal from it as long as you are employed with the university until you are 70.5. However, if you leave the university, you can withdrawal penalty free anytime. If we are able to retire early, then this account will be useful for us to draw money if needed prior to me hitting 59.5. You are not allowed to take a loan out against it, but we are not planning to do that anyways.

The 403B allows you to withdraw at 59.5 even if you are still working for the university, and allows you to take a loan out against it if needed. But we wouldn't be able to withdraw until she hits 59.5


Both have the same investment choices and there is no difference of administrative fees. In fact, its one fee no matter how much or how many accounts you have so from a cash perspective its better to max out both.

retiredjg
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Re: 403B vs 457B

Post by retiredjg » Thu Dec 05, 2019 5:21 pm

azianbob wrote:
Thu Dec 05, 2019 12:52 pm
The 403B allows you to withdraw at 59.5 even if you are still working for the university, and allows you to take a loan out against it if needed. But we wouldn't be able to withdraw until she hits 59.5
I'm not sure that is totally correct. I believe (not positive) that 403bs also have an age 55 exception - if you retire in or after the year you reach age 55, the money is available from the 403b with no penalty.

If retirement happens before age 55, the 457 is clearly the better choice.

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Re: 403B vs 457B

Post by getthatmarshmallow » Thu Dec 05, 2019 5:57 pm

When faced with the same decision I went with the 457b first, because it's accessible upon separation from service. But I wanted to point out that you can do both, if your finances allow. One can have both a 457b and a 403b, and contribute the max in each.

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Re: 403B vs 457B

Post by CyclingDuo » Thu Dec 05, 2019 7:26 pm

azianbob wrote:
Wed Nov 13, 2019 8:15 pm
Hello, the wife recently got a job at a university so debating which one to prioritize. There is no matching in either one.

I have been reading around and it seems the 457B lets you withdraw anytime, unless you are still with the university, whereas the 403B you have to be 59.5 to withdraw but can do so if still working. Both seem portable.

Is there one we should prioritize contributing to over the other?
Compare the choices in both the 403b and 457b with what you have in your own retirement plan (assuming a 401k), to make sure that you are optimizing and filling - as a dual income couple - the lowest cost space first. Assuming you file MFJ, filling the lowest cost space first is well worth it in our opinion (factor in ER fees as well as annual maintenance wrap fees as well). Since there is no match for your wife's plan (does that come later after a vesting period of working there one year or more?), figure out from a household tax point of view - what is best for getting your taxable income low enough to also contribute to your Roth IRA's if feasible. After that is done, and if enough salary remains I would then go back and fill some more of the 401k/403b/457b space.

The order of prioritizing investments is here:

https://www.bogleheads.org/wiki/Priorit ... nvestments

You can read all matters 403b vs. 457b here:

https://403bwise.org/

https://403bwise.org/education/other

How a 457(b) is Different From a 403(b)
The key differences are:

•Assets in a 403(b) are held directly by employees, while 457(b) assets are held in a trust for the benefit of employees.
•There is no federal 10 percent premature distribution penalty imposed on withdrawals from a 457(b) plan when separating from service.
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mggray17
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Re: 403B vs 457B

Post by mggray17 » Thu Dec 05, 2019 8:56 pm

retire2022 wrote:
Sat Nov 16, 2019 11:01 am
csmath wrote:
Thu Nov 14, 2019 12:58 am
I have a few questions that I believe are relevant to the OP also. Are the following statements true for non-Roth version?

1) Both 403b and 457b governmental plans are never taxed by the State if contributions are made from a payroll deductions.
2) #1 is true in only some states, none, or all.
3) Payroll deduction contributions are after-FICA but before State & Federal.
4) Distributions are only taxed Federally?

If the above are always/sometimes State-Tax free, what about the Roth versions of them?
In NYS traditional 401k, 403b, 457 and traditional IRA up to 20K is exempt from NYS taxes Roths in NYS are exempt from all NYS taxes at withdrawals; in New Jersey all 401, 403, 457 and all Roth accounts are taxed in that state at withdrawals so it depends on which state you live.

here is article link from Kiplinger on which states do not tax retirement accounts:

https://www.kiplinger.com/slideshow/ret ... index.html
In NJ, Qualified Roth IRA distributions are not taxable.
401K contributions are excluded from taxable income, distributions are taxable.
403B or 457, contributions are not excluded from taxable income, distributions are not taxed until contributions are recovered, the remainder of distributions are taxed.

Topic Author
azianbob
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Re: 403B vs 457B

Post by azianbob » Fri Dec 06, 2019 12:28 pm

There is no federal penalty for withdrawing from the 457 after service ends, but there is no state penalty as well? Or are retirement plan penalties only imposed by federal?

My wife also has a pension plan with match (401A), so there is no match to the 403B or 457B. They are supplemental things. Otherwise yes, we would go with the one that has a match first.

Our goal is to eventually contribute the max to both, but wanted to know which we should prioritize first.

retiredjg
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Re: 403B vs 457B

Post by retiredjg » Fri Dec 06, 2019 5:12 pm

As far as I know, the early withdrawal penalty is only federal.

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CyclingDuo
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Re: 403B vs 457B

Post by CyclingDuo » Sat Dec 07, 2019 9:47 am

azianbob wrote:
Fri Dec 06, 2019 12:28 pm
There is no federal penalty for withdrawing from the 457 after service ends, but there is no state penalty as well? Or are retirement plan penalties only imposed by federal?

My wife also has a pension plan with match (401A), so there is no match to the 403B or 457B. They are supplemental things. Otherwise yes, we would go with the one that has a match first.

Our goal is to eventually contribute the max to both, but wanted to know which we should prioritize first.
Ah...that answers the question I had upthread if she would eventually vest and receive a match in the 403b. Does she pay into SS as well, or are you in a state where she doesn't pay into SS and more goes into the pension? Thanks to the pension, your household is setting itself up for the traditional three legged stool of retirement income streams: pension, SS, and risk portfolio.

Image

Due to the 401a mandatory contributions on her part as well as the match from the employer, the 403b and 457b plans are completely voluntary. My wife has the same type of plan (mandatory state pension plus the two voluntary plans of 403b and 457b, plus paying into SS). Managing all three in terms of how many years one works to contribute into them, as well as how much is contributed into the 403b/457b is about all you can do to build (or manage) all three future income streams.

What are the annual administrative fees (known as wrap fees) for the 403b/457b? It's usually an additional charge over and beyond the underlying ER fees of the funds in the plan. For example, my wife's voluntary 403b/457b plans have the Vanguard low cost index funds, but there is an additional administrative wrap fee tacked on of .18%. Here is the example of the funds she uses in her 457b and the total ER fee (fund fee + .18% annual administrative wrap fee):

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)

Worth considering if your 401k plan has lower ER fees and a lower administrative fee or no fee (picked up by employer) to fill that space first from your paycheck if you have low cost index funds available. For example, no matter the balance, I pay an annual fee of $40 for my 401k. So if a balance was $100K, the annual administrative fee is $40 a year in my 401k compared to $180 a year annual fee for the same balance in my wife's 457b & 403b plans. Not a deal breaker, but certainly gives you - as a couple - the option to fill the lowest cost plan first before moving on to the other(s) if you are filing as MFJ and have the plans and salary to work on either side of the dual household income equation.

Does her pension plan allow additional years of service to purchase come retirement? If so, one can use some of the 403b/457b money to purchase the additional years of service at retirement to boost the pension without any tax implications at the time, but one must be careful to run the numbers to see if that is worthwhile compared to just rolling the 403b/457b into an IRA and the future growth it could provide compared to purchasing extra years of service in the pension fund.

Even though she just started the job, it is worth thinking through some of those things for the longer term when you compare her plans with the plan(s) you may have available via your job.

CyclingDuo
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