457 vs 403b

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Blake7
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Re: 457 vs 403b

Post by Blake7 » Thu Dec 20, 2018 2:22 pm

JimMolony wrote:
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
Sure. I'm a bit short on time today, but the form to apply for it from this link explains it fairly well. It's not updated for 2019 yet, but explains the rules:

https://www.icmarc.org/prebuilt/apps/downloadDoc.asp

boglefannyc
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Re: 457 vs 403b

Post by boglefannyc » Thu Dec 20, 2018 2:37 pm

JimMolony wrote:
Thu Dec 20, 2018 1:33 pm
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
The way mine worked was that you were able to make up for prior years where you did not contribute to the maximum. If you have enough headroom, you can max out from 1-3 years of twice the normal 457b maximum without the over 50 catch-up provision.

For 2019 your wife may be able to contribute as much 2x$19k for the 457b + $25k for the 403b for a total of $63k.

*Edited to twice the normal 457b
Last edited by boglefannyc on Thu Dec 20, 2018 4:13 pm, edited 1 time in total.

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F150HD
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Re: 457 vs 403b

Post by F150HD » Thu Dec 20, 2018 3:02 pm

JimMolony wrote:
Thu Dec 20, 2018 1:33 pm
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
I just know what I've read online so am no expert.

This article touches on it (click me)

For three years before you retire, you may qualify to contribute double the annual contribution limit. That's a potential contribution of $37,000 in 2018. However, keep in mind that you may not take advantage of both catch-up options in the same year.....

bg5
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Re: 457 vs 403b

Post by bg5 » Thu Dec 20, 2018 8:27 pm

I am a teacher and use both a 403b and a 457b. They both are great but there are some huge differences between the two that you need to be aware of. I personally prefer the 457b plan but I plan to retire early and will never need to access it early. The good news is I can max out both if I choose to each year. I choose to max out my ROTH IRA first and then try to put around 13K a year into my 457b.

457b plans are great because you can retire early and access that cash at 50 as long as you are retired without paying the 10% penalty. That is huge and My plan has always been to retire early and pull out my cash from the 457b and buy a rental property or two. The one major issue with a 457b plan is if you nee to access the money for emergencies is basically untouchable.

A 403b plan does give you the flexibility to access your cash in times of emergencies/hardships but you have to pay penalties. The 457b plan basically wont let you access your cash during emergencies/hardships so its basically locked away. The 403b plan can only be accessed when you turn 59 1/2.

Pros and Cons to both plans but I prefer the 457 because I want to retire early but I understand that the money in the 457 is basically untouchable compared to my 403b plan which I could access early if needed for hardships

helloeveryone
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Re: 457 vs 403b

Post by helloeveryone » Thu Dec 20, 2018 9:27 pm

Michael Patrick wrote:
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.
I think from what I recently learned if you roll a 457 into IRA you lose the ability to withdraw before 59 1/2 without the 10% penalty. Not 100% sure though because just learned about 457’s

Blake7
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Re: 457 vs 403b

Post by Blake7 » Thu Dec 20, 2018 9:47 pm

helloeveryone wrote:
Thu Dec 20, 2018 9:27 pm
Michael Patrick wrote:
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.
I think from what I recently learned if you roll a 457 into IRA you lose the ability to withdraw before 59 1/2 without the 10% penalty. Not 100% sure though because just learned about 457’s
You are correct. That benefit will be lost.

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Michael Patrick
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Re: 457 vs 403b

Post by Michael Patrick » Thu Dec 20, 2018 9:59 pm

helloeveryone wrote:
Thu Dec 20, 2018 9:27 pm
Michael Patrick wrote:
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.
I think from what I recently learned if you roll a 457 into IRA you lose the ability to withdraw before 59 1/2 without the 10% penalty. Not 100% sure though because just learned about 457’s
It wasn't a huge amount of money, and we aren't planning on retiring early since we waited to have kids. Gotta work at least until after kid #1 is out of college.

MathIsMyWayr
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Re: 457 vs 403b

Post by MathIsMyWayr » Thu Dec 20, 2018 11:42 pm

F150HD wrote:
Thu Dec 20, 2018 3:02 pm
JimMolony wrote:
Thu Dec 20, 2018 1:33 pm
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
I just know what I've read online so am no expert.

This article touches on it (click me)

For three years before you retire, you may qualify to contribute double the annual contribution limit. That's a potential contribution of $37,000 in 2018. However, keep in mind that you may not take advantage of both catch-up options in the same year.....
It is not "three years before you retire", but three years before the normal retirement age (NRA) specified in the plan. You may take advantage of the special three year catch-up any time once you pass the age NRA-3 years. In DW's 457 plan, the catch-up has to be taken over one contiguous period of 3 years. You may not take a break. Please be mindful of the plan specifics. In 2018, the total will be 403b($24,500)+457b($37,000)+backdoor Roth($6,500)=$68,000.

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F150HD
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Re: 457 vs 403b

Post by F150HD » Fri Jan 11, 2019 11:05 am

457 question-

SO, I am dumping a few extra dollars into a 457 I found out I could access last year. Employer offers a pre-tax version AND a Roth version.

So far I was just using the pre-tax version, but now am considering switching all future contributions to the Roth version.

My question is - will the custodian keep these 'monies' separate for me? (I assume so) or do I have to manually track their separation?

I did call them and they stated they are kept in separate 'buckets' but when I login online I won't see the money separated. This is a concern, I reasoned it made sense I should see the separate 'buckets' when logging in (?)

I want to ensure the Roth and Pre-Tax monies are indeed kept separate to avoid a tax hassle 20 years from now.

Anyone have a similar experience as this? Thanks for any input.

Guess I could put this in a new thread, but it fit well 'here'.

Blake7
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Re: 457 vs 403b

Post by Blake7 » Fri Jan 11, 2019 2:04 pm

F150HD wrote:
Fri Jan 11, 2019 11:05 am
457 question-

SO, I am dumping a few extra dollars into a 457 I found out I could access last year. Employer offers a pre-tax version AND a Roth version.

So far I was just using the pre-tax version, but now am considering switching all future contributions to the Roth version.

My question is - will the custodian keep these 'monies' separate for me? (I assume so) or do I have to manually track their separation?

I did call them and they stated they are kept in separate 'buckets' but when I login online I won't see the money separated. This is a concern, I reasoned it made sense I should see the separate 'buckets' when logging in (?)

I want to ensure the Roth and Pre-Tax monies are indeed kept separate to avoid a tax hassle 20 years from now.

Anyone have a similar experience as this? Thanks for any input.

Guess I could put this in a new thread, but it fit well 'here'.
It sounds like it's just a limitation of their online software. If you don't already have one, I would request a statement, transaction confirmation, or something in writing to keep on file. I fairly sure they are required by law to track the pre-tax and Roth for tax purposes.

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F150HD
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Re: 457 vs 403b

Post by F150HD » Fri Jan 11, 2019 2:21 pm

Blake7 wrote:
Fri Jan 11, 2019 2:04 pm
F150HD wrote:
Fri Jan 11, 2019 11:05 am
457 question-

SO, I am dumping a few extra dollars into a 457 I found out I could access last year. Employer offers a pre-tax version AND a Roth version.

So far I was just using the pre-tax version, but now am considering switching all future contributions to the Roth version.

My question is - will the custodian keep these 'monies' separate for me? (I assume so) or do I have to manually track their separation?

I did call them and they stated they are kept in separate 'buckets' but when I login online I won't see the money separated. This is a concern, I reasoned it made sense I should see the separate 'buckets' when logging in (?)

I want to ensure the Roth and Pre-Tax monies are indeed kept separate to avoid a tax hassle 20 years from now.

Anyone have a similar experience as this? Thanks for any input.

Guess I could put this in a new thread, but it fit well 'here'.
It sounds like it's just a limitation of their online software. If you don't already have one, I would request a statement, transaction confirmation, or something in writing to keep on file. I fairly sure they are required by law to track the pre-tax and Roth for tax purposes.
I just want to ensure that it IS tracked in 2 different buckets. I'd have to believe it is (its a State system), but before I swap my future contributions to the Roth side wanted to inquire about others experiences. Thanks.

krow36
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Re: 457 vs 403b

Post by krow36 » Fri Jan 11, 2019 8:51 pm

F150HD wrote:
Fri Jan 11, 2019 2:21 pm
I just want to ensure that it IS tracked in 2 different buckets. I'd have to believe it is (its a State system), but before I swap my future contributions to the Roth side wanted to inquire about others experiences. Thanks.
You should call 457 office and ask why your online account doesn't show 2 separate accounts, assuming that you've now made Roth 457 contributions. If you have made both traditional and Roth 457 contributions, I think you can be certain they are (or will be) in separate accounts within your 457 account. :)

krow36
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Re: 457 vs 403b

Post by krow36 » Fri Jan 11, 2019 9:23 pm

It wasn’t until 2001 that the law was changed so that it was possible to max out both a 457 and a 403b or 401k. I retired in 1992 so missed out out on the possibility of contributing to both a 457 and a 403b. I haven’t been able to find out the year that school districts were first able to offer 457 plans. I believe that prior to that time, 457 plans were used by local and state governments.
The Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) made a number of changes in how governmental 457 plans are treated, the most notable of which is that the coordination of benefits limitation was removed. This allows a person whose employer has a 401(k) or 403(b) and a 457 to defer the maximum contribution amounts to both plans instead of coordinating the total and only being able to meet a single limit amount.
https://en.wikipedia.org/wiki/457_plan

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F150HD
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Re: 457 vs 403b

Post by F150HD » Fri Jan 11, 2019 10:51 pm

krow36 wrote:
Fri Jan 11, 2019 8:51 pm
You should call 457 office and ask why your online account doesn't show 2 separate accounts, assuming that you've now made Roth 457 contributions. If you have made both traditional and Roth 457 contributions, I think you can be certain they are (or will be) in separate accounts within your 457 account. :)
Stated above:
I did call them and they stated they are kept in separate 'buckets' but when I login online I won't see the money separated.

fposte
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Re: 457 vs 403b

Post by fposte » Sat Jan 12, 2019 1:33 am

F150HD wrote:
Fri Jan 11, 2019 11:05 am
SO, I am dumping a few extra dollars into a 457 I found out I could access last year. Employer offers a pre-tax version AND a Roth version.

So far I was just using the pre-tax version, but now am considering switching all future contributions to the Roth version.

My question is - will the custodian keep these 'monies' separate for me? (I assume so) or do I have to manually track their separation?

I did call them and they stated they are kept in separate 'buckets' but when I login online I won't see the money separated. This is a concern, I reasoned it made sense I should see the separate 'buckets' when logging in (?)
Who is the custodian? We might know a shortcut.

In my experience with my TIAA 403b and my T. Rowe Price 457b, displaying the post-tax status of some contributions online seems to be a very low priority for vendors and tends to appear as a bit of an afterthought, so it can take a bit of ingenuity to find it, and I'm not surprised to hear that some may not at all. However, my quarterly statements, which are available online, clearly differentiate, so you might ask about those.

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F150HD
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Re: 457 vs 403b

Post by F150HD » Sat Jan 12, 2019 9:11 am

fposte wrote:
Sat Jan 12, 2019 1:33 am
F150HD wrote:
Fri Jan 11, 2019 11:05 am
SO, I am dumping a few extra dollars into a 457 I found out I could access last year. Employer offers a pre-tax version AND a Roth version.

So far I was just using the pre-tax version, but now am considering switching all future contributions to the Roth version.

My question is - will the custodian keep these 'monies' separate for me? (I assume so) or do I have to manually track their separation?

I did call them and they stated they are kept in separate 'buckets' but when I login online I won't see the money separated. This is a concern, I reasoned it made sense I should see the separate 'buckets' when logging in (?)
Who is the custodian? We might know a shortcut.

In my experience with my TIAA 403b and my T. Rowe Price 457b, displaying the post-tax status of some contributions online seems to be a very low priority for vendors and tends to appear as a bit of an afterthought, so it can take a bit of ingenuity to find it, and I'm not surprised to hear that some may not at all. However, my quarterly statements, which are available online, clearly differentiate, so you might ask about those.
Thanks.
They said I could 'call' and they could send me a paper copy or PDF of the two 'buckets', but it seems like a no brainer this should be visible logging in online if one so chose, along w/ an aggregate total that overlays if one so selects that option as a default.
I just wanted to insure the $$ was indeed kept separate. The lady I talked to was on the ball about it and stated that seeing the separate 'buckets' is a system upgrade that would be nice to have.

jbuzolich
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Re: 457 vs 403b

Post by jbuzolich » Sat Jan 12, 2019 9:26 am

457 plans do feel like a secret sometimes. I'm on the 457 plan oversight committee at my job and accepted a personal fiduciary responsibility being on that group. We're in local government and it feels like very few employees know or have interest because of the pension plan we already have. Anyway, we recently consolidated to one administrative provider and streamlined the menu of investment options. Reduced fees by something around $100k per year for the participants. Great experience for me going through that plus all the participants benefit. My personal savings in the plan now has some vanguard fund options. When I try to talk with staff about participating, and even doing $20 per month to try and get the small match offered, people often just glaze over. Don't know it and don't want to. I try and keep up the cheerleading anyway.

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F150HD
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Re: 457 vs 403b

Post by F150HD » Sat Jan 12, 2019 10:03 am

Just to clarify....

One gets lulled into 'no RMDs for a Roth' (for the owner of a Roth IRA) but if I am reading correctly this does not apply to an employer based Roth 457b.

An employer based Roth 457b does have an RMD requirement at 70.5.

So at age 70 (or at 'retirement') can one then just roll the Roth 457b portion over to a Roth IRA? and avoid the RMDs?

I'm not near retirement, but thinking 20+ years down the road.

fposte
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Re: 457 vs 403b

Post by fposte » Sat Jan 12, 2019 10:11 am

F150HD wrote:
Sat Jan 12, 2019 10:03 am
Just to clarify....

One gets lulled into 'no RMDs for a Roth' (for the owner of a Roth IRA) but if I am reading correctly this does not apply to an employer based Roth 457b.

An employer based Roth 457b does have an RMD requirement at 70.5.
Right, same as a Roth 403b or Roth 401k. You can either roll the account into a Roth IRA, where it won't be subject to RMDs, or accept the RMDs.
They said I could 'call' and they could send me a paper copy or PDF of the two 'buckets', but it seems like a no brainer this should be visible logging in online if one so chose, along w/ an aggregate total that overlays if one so selects that option as a default.
Yeah, it's annoying. Roth money is clearly an afterthought on interface design with some vendors. But I would ask about the quarterly statements in the meantime--that's a pretty good frequency of checking. You can also check to see if it's properly differentiated on your paystub--IME that's where mistakes are likelier to happen anyway.

StackOfOnes
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Re: 457 vs 403b

Post by StackOfOnes » Sat Jan 12, 2019 10:21 pm

Yes, 457s are a learning curve when you first hear of them. Certainly was for me.

The benefit for us is access to Vanguard Institutional shares at 0.01 expense ratio. Yes please! The low fees absolutely destroy any of the 403b options, and those are Vanguard funds too!

These are mostly available through government and academia, so if you have any connection to government (local, state, national) do your research. A simple call to HR may not be enough. As others have said, HR often has no clue. I would start at the state level and work down if you must.

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Re: 457 vs 403b

Post by willthrill81 » Sun Jan 13, 2019 11:37 am

StackOfOnes wrote:
Sat Jan 12, 2019 10:21 pm
Yes, 457s are a learning curve when you first hear of them. Certainly was for me.

The benefit for us is access to Vanguard Institutional shares at 0.01 expense ratio. Yes please! The low fees absolutely destroy any of the 403b options, and those are Vanguard funds too!

These are mostly available through government and academia, so if you have any connection to government (local, state, national) do your research. A simple call to HR may not be enough. As others have said, HR often has no clue. I would start at the state level and work down if you must.
I only have about seven options in my 457, but there are enough good ones to make it worthwhile (e.g. S&P 500, international, small-cap value, U.S. total bond fund), and the expense ratios are very attractive, a paltry .003% for the S&P 500 index fund.

The really attractive feature of the 457 for me is the ability to make penalty-free withdrawals prior to age 59.5 since I'm planning on an retiring no later than age 55 and perhaps sooner.
“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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F150HD
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Re: 457 vs 403b

Post by F150HD » Sun Jan 13, 2019 11:48 am

F150HD wrote:
Sat Jan 12, 2019 10:03 am
Just to clarify....

One gets lulled into 'no RMDs for a Roth' (for the owner of a Roth IRA) but if I am reading correctly this does not apply to an employer based Roth 457b.

An employer based Roth 457b does have an RMD requirement at 70.5.

So at age 70 (or at 'retirement') can one then just roll the Roth 457b portion over to a Roth IRA? and avoid the RMDs?

I'm not near retirement, but thinking 20+ years down the road.
fposte I appreciate the reply, but can one really get around the RMDs? I would hope to, but part of me feels that they won't be inescapable being its an employer based plan (and not a Roth IRA, which is non-employer based)

anyone else comment on this?

retire2022
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Re: 457 vs 403b

Post by retire2022 » Sun Jan 13, 2019 11:49 am

krow36 wrote:
Fri Jan 11, 2019 8:51 pm
F150HD wrote:
Fri Jan 11, 2019 2:21 pm
I just want to ensure that it IS tracked in 2 different buckets. I'd have to believe it is (its a State system), but before I swap my future contributions to the Roth side wanted to inquire about others experiences. Thanks.
You should call 457 office and ask why your online account doesn't show 2 separate accounts, assuming that you've now made Roth 457 contributions. If you have made both traditional and Roth 457 contributions, I think you can be certain they are (or will be) in separate accounts within your 457 account. :)
I concur with Krow36, that there is a separate (before tax) Traditional and (after Tax) Roth 457 in NYS it is reflected in the pay stub in the respective buckets.

In my plan I can change online to which paycheck will be contributing to Traditional, they call it before tax or after tax for Roth 457.

F150HD I would experiment with one paycheck to see if this is the case.

retire2022
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Re: 457 vs 403b

Post by retire2022 » Sun Jan 13, 2019 11:55 am

Dottie57 wrote:
Mon Nov 12, 2018 9:49 pm
I thought I had read in this forum that 403b have better protection from creditors than 457.
Edited for clarity
Dottie fposte revelation of the link of Publication 4484, which explains 457B for not for profits, the former is subject to creditor and the later not subject i.e. 457b for local government, perhaps we could organize legislation for parity between local & state government with not for profits but I digress.

https://www.irs.gov/pub/irs-pdf/p4484.pdf
Last edited by retire2022 on Sun Jan 13, 2019 1:12 pm, edited 2 times in total.

retire2022
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Re: 457 vs 403b

Post by retire2022 » Sun Jan 13, 2019 12:01 pm

OP and all page 22 Table 1-4 of IRS publication 590a explains what plans can/cannot be transferred to which.

This is important if one desires to max out with their savings Roth IRA & Roth 457 etc.

https://www.irs.gov/pub/irs-pdf/p590a.pdf

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Clever_Username
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Re: 457 vs 403b

Post by Clever_Username » Sun Jan 13, 2019 12:31 pm

This is a very exciting thread, thank you to everyone who has shared.

I believe I will be eligible for a 457 in the not-too-distant future (possibly later this calendar year). I believe I will be able to max out my 403(b) (I already do) and the 457. If I understand the latter, contributions go in pre-tax from my paycheck, just like 403(b) does, but I cannot access it while still employed (not a problem as I have plenty of other assets to tap in event of an emergency). However, the benefit becomes that upon separation, I can withdraw from it, the same way I would be able to withdraw from an IRA in event of being retirement age (money that comes out is income that year), even if I am not yet in the year in which I am 59.5.

I believe the above is already discussed in this thread; I'm mostly making sure I understand it and trying to put it in one place.

Too bad it took me so long to become eligible for the 457 (not there ... yet), but at least once I can contribute it seems amazing.
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fposte
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Re: 457 vs 403b

Post by fposte » Sun Jan 13, 2019 12:34 pm

F150HD wrote:
Sun Jan 13, 2019 11:48 am
fposte I appreciate the reply, but can one really get around the RMDs? I would hope to, but part of me feels that they won't be inescapable being its an employer based plan (and not a Roth IRA, which is non-employer based)
Yes, one can roll over an employer-based retirement plan into an IRA, usually upon separation or retirement. This isn't specific to 457s--it's the same for 403bs and 401ks. Here is an IRS page describing it.

Do note that you can't just pull over the after-tax amounts and leave the pretax amounts in the 457. But you can just roll pretax into a traditional IRA (RMDs still required) and after-tax into a Roth IRA (no RMDs required).

krow36
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Re: 457 vs 403b

Post by krow36 » Sun Jan 13, 2019 12:39 pm

F150HD wrote:
Sun Jan 13, 2019 11:48 am
F150HD wrote:
Sat Jan 12, 2019 10:03 am
Just to clarify....

One gets lulled into 'no RMDs for a Roth' (for the owner of a Roth IRA) but if I am reading correctly this does not apply to an employer based Roth 457b.

An employer based Roth 457b does have an RMD requirement at 70.5.

So at age 70 (or at 'retirement') can one then just roll the Roth 457b portion over to a Roth IRA? and avoid the RMDs?

I'm not near retirement, but thinking 20+ years down the road.
fposte I appreciate the reply, but can one really get around the RMDs? I would hope to, but part of me feels that they won't be inescapable being its an employer based plan (and not a Roth IRA, which is non-employer based)

anyone else comment on this?
Yes, you can escape the RMDs on a Roth 457 (or Roth 401k or Roth 403b) by rolling it over to a Roth IRA after age 59.5 if still employed by the plan's sponsor, or at any age if no longer employed by the plan's sponsor.

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Re: 457 vs 403b

Post by fposte » Sun Jan 13, 2019 1:06 pm

We talk about the lack of protections of non-governmental 457bs; I'll also note that even governmental 457bs don't seem have some of the federal oversight that 401ks and 403bs do. I went on a deep dive when my employer screwed up handling my 457 contribution last year, and the IRS has guidance for correcting errors on 403bs which include penalties, and oversight through EBSA on 401ks, etc., but as far as I could tell there's nothing federal to deal with errors made in 457s. I talked to a local IRS person who couldn't find anything either and suggested I write to the IRS office of legal counsel, who never answered. I suspect my state might actually be the right place to take the query, but I never went that far.

The actual financial impact of their error was negligible, but I was really startled to find out that, federally speaking, nobody really cared. As it happens, my contribution was messed up again this cycle, so if I find out Monday the mistake happened in the same place I may be moved to see if I can find somebody at the state to notify.

I'm still contributing to the 457 and plan to until I retire, but as long as we're discussing the difference I thought it was worth noting.

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F150HD
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Re: 457 vs 403b

Post by F150HD » Sun Jan 13, 2019 2:31 pm

fposte wrote:
Sun Jan 13, 2019 12:34 pm
F150HD wrote:
Sun Jan 13, 2019 11:48 am
fposte I appreciate the reply, but can one really get around the RMDs? I would hope to, but part of me feels that they won't be inescapable being its an employer based plan (and not a Roth IRA, which is non-employer based)
Yes, one can roll over an employer-based retirement plan into an IRA, usually upon separation or retirement. This isn't specific to 457s--it's the same for 403bs and 401ks. Here is an IRS page describing it.

Do note that you can't just pull over the after-tax amounts and leave the pretax amounts in the 457. But you can just roll pretax into a traditional IRA (RMDs still required) and after-tax into a Roth IRA (no RMDs required).
Thanks. Very useful. :thumbsup

Goal would be to roll it all over.
krow36 wrote:
Sun Jan 13, 2019 12:39 pm
Yes, you can escape the RMDs on a Roth 457 (or Roth 401k or Roth 403b) by rolling it over to a Roth IRA after age 59.5 if still employed by the plan's sponsor, or at any age if no longer employed by the plan's sponsor.
Thanks, was just looking to confirm. Retirement is a way off but the Roth side has me thinking down the road lately in regard to tax brackets and RMDs etc.

StackOfOnes
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Re: 457 vs 403b

Post by StackOfOnes » Sun Jan 13, 2019 10:05 pm

One other wrinkle to consider with 457s, if you are a teacher or government, is how your job figures your pension and retirement age.

Where we are, if you leave before your "magic number" ie the number of years work and your age put into a specific formula, you take a large hit on your pension. This formula basically spits out what age you hit "full retirement benefits" and it is rarely 65!

While this doesn't affect a 457 per se, your magic number may give you a very good idea of WHEN you could retire. If it is before 59 1/2, having the 457 account might let you delay tapping other accounts until you are over 59 1/2 and avoid penalties for early withdrawals.

I only mention this because if you have a 457, there's a good chance you have access to some sort of pension too.

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Re: 457 vs 403b

Post by MNGopher » Sun Jan 13, 2019 10:53 pm

StackOfOnes wrote:
Sun Jan 13, 2019 10:05 pm
One other wrinkle to consider with 457s, if you are a teacher or government, is how your job figures your pension and retirement age.

Where we are, if you leave before your "magic number" ie the number of years work and your age put into a specific formula, you take a large hit on your pension. This formula basically spits out what age you hit "full retirement benefits" and it is rarely 65!

While this doesn't affect a 457 per se, your magic number may give you a very good idea of WHEN you could retire. If it is before 59 1/2, having the 457 account might let you delay tapping other accounts until you are over 59 1/2 and avoid penalties for early withdrawals.

I only mention this because if you have a 457, there's a good chance you have access to some sort of pension too.
This is a good point on the advantage of using a 457 if you plan to retire before 55. If you separate service (quit, get fired, retire) from your employer after age 55, I believe you can also withdraw from either a 401K or 403B, as well as the 457 without the 10% tax/penalty. The key is it has to after your 55th birthday. For example, if you separate service at 54, you can't just wait until 55, you have to wait all the way to 59.5 to avoid the penalty. Someone please correct me if this is wrong.

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Re: 457 vs 403b

Post by mhadden1 » Sun Jan 13, 2019 11:17 pm

In Alabama, the Retirement Systems of Alabama provides public employees, including teachers, a 457 plan called RSA-1. For investment choices, essentially RSA rolls their own S&P 500, total bond, and short term bond funds with no fees. I don't think it gets touted much at school retirement seminars or anything because there is no insurance company or whatever making money from it. And, with the overall collapse in index fund fees, the zero fee may not be so special anymore, but, still, not bad.
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willthrill81
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Re: 457 vs 403b

Post by willthrill81 » Mon Jan 14, 2019 12:00 am

MNGopher wrote:
Sun Jan 13, 2019 10:53 pm
StackOfOnes wrote:
Sun Jan 13, 2019 10:05 pm
One other wrinkle to consider with 457s, if you are a teacher or government, is how your job figures your pension and retirement age.

Where we are, if you leave before your "magic number" ie the number of years work and your age put into a specific formula, you take a large hit on your pension. This formula basically spits out what age you hit "full retirement benefits" and it is rarely 65!

While this doesn't affect a 457 per se, your magic number may give you a very good idea of WHEN you could retire. If it is before 59 1/2, having the 457 account might let you delay tapping other accounts until you are over 59 1/2 and avoid penalties for early withdrawals.

I only mention this because if you have a 457, there's a good chance you have access to some sort of pension too.
This is a good point on the advantage of using a 457 if you plan to retire before 55. If you separate service (quit, get fired, retire) from your employer after age 55, I believe you can also withdraw from either a 401K or 403B, as well as the 457 without the 10% tax/penalty. The key is it has to after your 55th birthday. For example, if you separate service at 54, you can't just wait until 55, you have to wait all the way to 59.5 to avoid the penalty. Someone please correct me if this is wrong.
You're almost entirely correct. For the 'age 55 rule' to apply, you must separate from service in the year that you turn 55 (or older). So if you're birthday is on Dec. 31st, you could separate from service on Jan. 1st of that calendar year and the rule would apply.
“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

02nz
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Re: 457 vs 403b

Post by 02nz » Mon Jan 14, 2019 12:12 am

willthrill81 wrote:
Mon Jan 14, 2019 12:00 am
MNGopher wrote:
Sun Jan 13, 2019 10:53 pm
StackOfOnes wrote:
Sun Jan 13, 2019 10:05 pm
One other wrinkle to consider with 457s, if you are a teacher or government, is how your job figures your pension and retirement age.

Where we are, if you leave before your "magic number" ie the number of years work and your age put into a specific formula, you take a large hit on your pension. This formula basically spits out what age you hit "full retirement benefits" and it is rarely 65!

While this doesn't affect a 457 per se, your magic number may give you a very good idea of WHEN you could retire. If it is before 59 1/2, having the 457 account might let you delay tapping other accounts until you are over 59 1/2 and avoid penalties for early withdrawals.

I only mention this because if you have a 457, there's a good chance you have access to some sort of pension too.
This is a good point on the advantage of using a 457 if you plan to retire before 55. If you separate service (quit, get fired, retire) from your employer after age 55, I believe you can also withdraw from either a 401K or 403B, as well as the 457 without the 10% tax/penalty. The key is it has to after your 55th birthday. For example, if you separate service at 54, you can't just wait until 55, you have to wait all the way to 59.5 to avoid the penalty. Someone please correct me if this is wrong.
You're almost entirely correct. For the 'age 55 rule' to apply, you must separate from service in the year that you turn 55 (or older). So if you're birthday is on Dec. 31st, you could separate from service on Jan. 1st of that calendar year and the rule would apply.
One more caveat: not all plans allow such an “age 55 rule” withdrawal. The IRS rules allow but don’t require plans to permit this. EDIT: no, all plans DO allow such a withdrawal.
Last edited by 02nz on Mon Jan 14, 2019 12:59 am, edited 1 time in total.

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willthrill81
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Re: 457 vs 403b

Post by willthrill81 » Mon Jan 14, 2019 12:31 am

02nz wrote:
Mon Jan 14, 2019 12:12 am
willthrill81 wrote:
Mon Jan 14, 2019 12:00 am
MNGopher wrote:
Sun Jan 13, 2019 10:53 pm
StackOfOnes wrote:
Sun Jan 13, 2019 10:05 pm
One other wrinkle to consider with 457s, if you are a teacher or government, is how your job figures your pension and retirement age.

Where we are, if you leave before your "magic number" ie the number of years work and your age put into a specific formula, you take a large hit on your pension. This formula basically spits out what age you hit "full retirement benefits" and it is rarely 65!

While this doesn't affect a 457 per se, your magic number may give you a very good idea of WHEN you could retire. If it is before 59 1/2, having the 457 account might let you delay tapping other accounts until you are over 59 1/2 and avoid penalties for early withdrawals.

I only mention this because if you have a 457, there's a good chance you have access to some sort of pension too.
This is a good point on the advantage of using a 457 if you plan to retire before 55. If you separate service (quit, get fired, retire) from your employer after age 55, I believe you can also withdraw from either a 401K or 403B, as well as the 457 without the 10% tax/penalty. The key is it has to after your 55th birthday. For example, if you separate service at 54, you can't just wait until 55, you have to wait all the way to 59.5 to avoid the penalty. Someone please correct me if this is wrong.
You're almost entirely correct. For the 'age 55 rule' to apply, you must separate from service in the year that you turn 55 (or older). So if you're birthday is on Dec. 31st, you could separate from service on Jan. 1st of that calendar year and the rule would apply.
One more caveat: not all plans allow such an “age 55 rule” withdrawal. The IRS rules allow but don’t require plans to permit this.
I've never heard of that caveat before. My understanding is that the 401k rules apply to all 401k plans. Do you have a source for it?
“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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Re: 457 vs 403b

Post by 02nz » Mon Jan 14, 2019 12:58 am

willthrill81 wrote:
Mon Jan 14, 2019 12:31 am
02nz wrote:
Mon Jan 14, 2019 12:12 am
willthrill81 wrote:
Mon Jan 14, 2019 12:00 am
MNGopher wrote:
Sun Jan 13, 2019 10:53 pm
StackOfOnes wrote:
Sun Jan 13, 2019 10:05 pm
One other wrinkle to consider with 457s, if you are a teacher or government, is how your job figures your pension and retirement age.

Where we are, if you leave before your "magic number" ie the number of years work and your age put into a specific formula, you take a large hit on your pension. This formula basically spits out what age you hit "full retirement benefits" and it is rarely 65!

While this doesn't affect a 457 per se, your magic number may give you a very good idea of WHEN you could retire. If it is before 59 1/2, having the 457 account might let you delay tapping other accounts until you are over 59 1/2 and avoid penalties for early withdrawals.

I only mention this because if you have a 457, there's a good chance you have access to some sort of pension too.
This is a good point on the advantage of using a 457 if you plan to retire before 55. If you separate service (quit, get fired, retire) from your employer after age 55, I believe you can also withdraw from either a 401K or 403B, as well as the 457 without the 10% tax/penalty. The key is it has to after your 55th birthday. For example, if you separate service at 54, you can't just wait until 55, you have to wait all the way to 59.5 to avoid the penalty. Someone please correct me if this is wrong.
You're almost entirely correct. For the 'age 55 rule' to apply, you must separate from service in the year that you turn 55 (or older). So if you're birthday is on Dec. 31st, you could separate from service on Jan. 1st of that calendar year and the rule would apply.
One more caveat: not all plans allow such an “age 55 rule” withdrawal. The IRS rules allow but don’t require plans to permit this.
I've never heard of that caveat before. My understanding is that the 401k rules apply to all 401k plans. Do you have a source for it?
My bad. :oops: I thought I’d read that on this forum, but the horse’s mouth says 55 for all plans. Even age 50 for certain public safety employees.

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Re: 457 vs 403b

Post by 02nz » Mon Jan 14, 2019 12:58 am

Delete

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SeeMoe
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Re: 457 vs 403b

Post by SeeMoe » Mon Jan 14, 2019 1:20 pm

We both started our 457 investing in the early 1980’s along with T-IRA accounts and maxed them all out until retiring. Only had a limited number of mutual funds to choose from then, but that was ok and we kept the AA mix at 60/40 , doing very well during those fabulous investing years as we fondly recall. The tax savings were the key for us to invest, but still live well during those accumulation years. Upon retirement we rolled over the 457’s into our Vanguard T-IRA’s and only reduced the AA to 100% bond funds when we began the mandatory RMD’s at age 70.6. The result is 2 more pensions that come in handy.
Recall one department that kept the 457 information a secret from their employees because the bosses got credit, pats on the back, for maintaining the U.S. Savings Bond program. Something like a 95% employee participation rate got the department recognized with a plague. It was a carryover from the WWII era. FYI.

SeeMoe.. :moneybag
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krow36
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Re: 457 vs 403b

Post by krow36 » Mon Jan 14, 2019 2:26 pm

02nz wrote:
Mon Jan 14, 2019 12:58 am
willthrill81 wrote:
Mon Jan 14, 2019 12:31 am
02nz wrote:
Mon Jan 14, 2019 12:12 am
willthrill81 wrote:
Mon Jan 14, 2019 12:00 am
MNGopher wrote:
Sun Jan 13, 2019 10:53 pm


This is a good point on the advantage of using a 457 if you plan to retire before 55. If you separate service (quit, get fired, retire) from your employer after age 55, I believe you can also withdraw from either a 401K or 403B, as well as the 457 without the 10% tax/penalty. The key is it has to after your 55th birthday. For example, if you separate service at 54, you can't just wait until 55, you have to wait all the way to 59.5 to avoid the penalty. Someone please correct me if this is wrong.
You're almost entirely correct. For the 'age 55 rule' to apply, you must separate from service in the year that you turn 55 (or older). So if you're birthday is on Dec. 31st, you could separate from service on Jan. 1st of that calendar year and the rule would apply.
One more caveat: not all plans allow such an “age 55 rule” withdrawal. The IRS rules allow but don’t require plans to permit this.
I've never heard of that caveat before. My understanding is that the 401k rules apply to all 401k plans. Do you have a source for it?
My bad. :oops: I thought I’d read that on this forum, but the horse’s mouth says 55 for all plans. Even age 50 for certain public safety employees.
Since a 457 plan is not considered a “qualified plan”, it looks like the no penalty on age 55 distribution doesn’t apply.
https://www.irs.gov/taxtopics/tc558

It’s clear that employees with a 403b plan can avoid the 10% early distribution penalty if there’s separation from service after age 55, but I can’t find where the IRS says the plan has to include this. I remember being corrected for not saying that it’s allowed but is plan dependent. :?
The IRC 72(t) tax generally applies to all distributions to participants or their beneficiaries except for those:
* Made after the attainment of age 59 ½,
* Made upon separation from service and after age 55,
* https://www.irs.gov/irm/part4/irm_04-07 ... 1480959136
EDITED to remove the evidence. :oops:
Last edited by krow36 on Mon Jan 14, 2019 5:43 pm, edited 1 time in total.

boglewill34
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Re: My district offers Fidelity and Vanguard for 403(b)

Post by boglewill34 » Mon Jan 14, 2019 2:41 pm

cusetownusa wrote:
Sun Dec 09, 2018 9:54 am
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.
Whaaaa? I walk by the NYSDCB office 3x a day, and my wife is employed at a school at which as far as we knew they didn't have a 457 option. If I come closer to maxing out my 457, we will indeed talk to them and try to make it available. Thanks!!

krow36
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Re: 457 vs 403b

Post by krow36 » Mon Jan 14, 2019 2:49 pm

I don’t think it’s been mentioned on this thread so far, but almost half the states have state-run 457 Deferred Compensation Plans that are available to teachers. They are almost always lower-cost plans than the generic 457 plans offered to K-12 districts by insurance companies. It’s common that school districts not only don’t emphasize 457 plans, it’s even more common that a low-cost state run 457 plan is not on the provider list.

I’ve been collecting state-run 457 plans that are available to teachers on a 403bwise thread for a few years. It’s an incomplete list, added to when anyone reports a new state. Some states have good plans that are not available to teachers, and I haven’t included them in the list.
http://board.403bwise.com/topic/6130-45 ... employees/

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Michael Patrick
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Re: 457 vs 403b

Post by Michael Patrick » Mon Jan 14, 2019 4:51 pm

SeeMoe wrote:
Mon Jan 14, 2019 1:20 pm
Recall one department that kept the 457 information a secret from their employees because the bosses got credit, pats on the back, for maintaining the U.S. Savings Bond program. Something like a 95% employee participation rate got the department recognized with a plague.
Ironic typo... :happy

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willthrill81
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Re: 457 vs 403b

Post by willthrill81 » Mon Jan 14, 2019 5:02 pm

krow36 wrote:
Mon Jan 14, 2019 2:26 pm
02nz wrote:
Mon Jan 14, 2019 12:58 am
willthrill81 wrote:
Mon Jan 14, 2019 12:31 am
02nz wrote:
Mon Jan 14, 2019 12:12 am
willthrill81 wrote:
Mon Jan 14, 2019 12:00 am


You're almost entirely correct. For the 'age 55 rule' to apply, you must separate from service in the year that you turn 55 (or older). So if you're birthday is on Dec. 31st, you could separate from service on Jan. 1st of that calendar year and the rule would apply.
One more caveat: not all plans allow such an “age 55 rule” withdrawal. The IRS rules allow but don’t require plans to permit this.
I've never heard of that caveat before. My understanding is that the 401k rules apply to all 401k plans. Do you have a source for it?
My bad. :oops: I thought I’d read that on this forum, but the horse’s mouth says 55 for all plans. Even age 50 for certain public safety employees.
Since a 457 plan is not considered a “qualified plan”, it looks like the no penalty on age 55 distribution doesn’t apply.
https://www.irs.gov/taxtopics/tc558

It’s clear that employees with a 403b plan can avoid the 10% early distribution penalty if there’s separation from service after age 55, but I can’t find where the IRS says the plan has to include this. I remember being corrected for not saying that it’s allowed but is plan dependent. :?
The IRC 72(t) tax generally applies to all distributions to participants or their beneficiaries except for those:
* Made after the attainment of age 59 ½,
* Made upon separation from service and after age 55,
* https://www.irs.gov/irm/part4/irm_04-07 ... 1480959136
457 plans are 'deferred compensation plans', and there are no age restrictions of any kind on when withdrawals can be made, although you must generally separate from service first, although exceptions to this last restriction can be made under certain 'hardship' circumstances.
If an employee resigns, or retires before age 59.5 and needs to withdraw their funds, they do not have to pay a 10% penalty fee, unlike 401(k) and 403(b) plans.
https://www.investopedia.com/terms/1/457plan.asp

And the 'age 55 rule' applies equally to 403(b) plans and 401(k) plans.
The IRS Rule of 55 allows an employee who is laid off, fired, or who quits a job between the ages of 55 and 59 1/2 to pull money out of his 401(k) or 403(b) plan without penalty. This applies to workers who leave their jobs anytime during or after the year of their 55th birthdays.
https://www.thebalance.com/what-is-the- ... 55-2894280
“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

retire2022
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Re: My district offers Fidelity and Vanguard for 403(b)

Post by retire2022 » Mon Jan 14, 2019 5:52 pm

boglewill34 wrote:
Mon Jan 14, 2019 2:41 pm

Whaaaa? I walk by the NYSDCB office 3x a day, and my wife is employed at a school at which as far as we knew they didn't have a 457 option.
Boglewill NYDCB (custodian is Nationawide and are located in Ohio) I'm a member also.
Last edited by retire2022 on Mon Jan 14, 2019 6:06 pm, edited 3 times in total.

retire2022
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Re: 457 vs 403b

Post by retire2022 » Mon Jan 14, 2019 5:53 pm

krow36 wrote:
Mon Jan 14, 2019 2:49 pm
I don’t think it’s been mentioned on this thread so far, but almost half the states have state-run 457 Deferred Compensation Plans that are available to teachers. They are almost always lower-cost plans than the generic 457 plans offered to K-12 districts by insurance companies. It’s common that school districts not only don’t emphasize 457 plans, it’s even more common that a low-cost state run 457 plan is not on the provider list.

I’ve been collecting state-run 457 plans that are available to teachers on a 403bwise thread for a few years. It’s an incomplete list, added to when anyone reports a new state. Some states have good plans that are not available to teachers, and I haven’t included them in the list.
http://board.403bwise.com/topic/6130-45 ... employees/
Krow36 I nominate you as 457 plan maven!

krow36
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Re: 457 vs 403b

Post by krow36 » Mon Jan 14, 2019 5:57 pm

Of course you're correct on the 457 distribution. :oops: I would like to know if all 401k and 403b plans must allow the Rule of 55, or is it something that is allowed but not required by the IRS.

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willthrill81
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Re: 457 vs 403b

Post by willthrill81 » Mon Jan 14, 2019 6:04 pm

krow36 wrote:
Mon Jan 14, 2019 5:57 pm
Of course you're correct on the 457 distribution. :oops: I would like to know if all 401k and 403b plans must allow the Rule of 55, or is it something that is allowed but not required by the IRS.
The plan does not make allowances. The IRS does.

A 401(k) plan cannot require, for instance, that you cannot make any withdrawals prior to age 70.5, when your RMDs begin.
“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

krow36
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Re: 457 vs 403b

Post by krow36 » Mon Jan 14, 2019 6:21 pm

Sometimes the IRS says the plan "may" allow something. Does that imply that the plan can choose to include it, or not? Is this the case with the Rule of 55? How about for the Age 50 catchup?

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willthrill81
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Re: 457 vs 403b

Post by willthrill81 » Mon Jan 14, 2019 6:38 pm

krow36 wrote:
Mon Jan 14, 2019 6:21 pm
Sometimes the IRS says the plan "may" allow something. Does that imply that the plan can choose to include it, or not? Is this the case with the Rule of 55? How about for the Age 50 catchup?
If the IRS specifically says that a plan "may" allow something, that's one thing. But requirements like no penalty-free withdrawals before age 59.5 (with exceptions), the age 55 rule, catch-up contributions, etc. are clearly specified by the IRS, not by the plan.

Remember, the plan doesn't 'care' when you make withdrawals, but the IRS very much does.
To qualify for the tax benefits available to qualified plans, a plan must both contain language that meets certain requirements (qualification rules) of the tax law and be operated in accordance with the plan’s provisions.
emphasis added
https://www.irs.gov/retirement-plans/pl ... n-overview

The distribution rules for 401k plans are here. They specify the following:
If a distribution is made to you under the plan before you reach age 59½, you may have to pay a 10% additional tax on the distribution. This tax applies to the amount received that you must include in income.

Exceptions. The 10% tax will not apply if distributions before age 59 ½ are made in any of the following circumstances:
...
Made to a participant after separation from service if the separation occurred during or after the calendar year in which the participant reached age 55
“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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