457, TSP, and IRA?

[Keyboard Ninja]

While doing random internet searches I ran into a website that was talking about a 457 plan. After the curiosity bug got to me I dug up a little bit on it. Apparently its like the TSP, and has a contribution limit on $15,500 per year.

If someone had both the TSP, 457, and an IRA would that mean they could put away potentially $36,000/year in pre-tax dollars? I couldn't find a definitive answer so I thought I'd ask

[GoodSense]

I am not familiar with TSPs. Only people working for certain government agencies/schools/non-profits are eligible for a 457(b) plan. You can only do it if offered by your employer, just like 403(b). I don't think many can put away $36K if they are under the income limit of being eligible for a traditional IRA that is tax-deductible ($52K).

[Walt34]

457(b) plans are for city and county employees, and perhaps non-profits, I don't know about that. Very similar to TSP and IRA, except that the funds are available immediately upon normal retirement without age restrictions. You can't contribute to both a 457(b) and an IRA (I did in 1984 but they stopped that the next year) as it was a double tax dodge.

The last three years before normal retirement you can use what they called a "catch-up provision" and contribute up to twice the normally allowed amount - I forget what that was - and keep on doing so for as long as you're still working. "Normal" retirement is defined by the employer, in my case 25 years, later lowered to 20 years.

[ziggy29]

Originally Posted by GoodSense

I am not familiar with TSPs.

A TSP is essentially the federal government's version of a 401K or 403B plan, and is generally governed under similar rules of those plans.

[martyb]

You can only tax defer a total of $15,500 ($20,500 if over age 50). You can have more than one account if you want (TSP, IRA etc.) but altogether, you can only defer the total amounts. I have a military TSP and a civilian TSP, but I can only defer a total of $20,500, so I stopped contributing to the military TSP and now put it all in the civilian one. I can't roll the military money into the civilian account until I retire, so it's just sitting there, doing nothing much. You can, however, put money into a ROTH IRA, which is what I'm doing.

[Gardnr]

Originally Posted by martyb

... I can't roll the military money into the civilian account until I retire, so it's just sitting there, doing nothing much. ...

Doing nothing much? It's invested in the TSP just as any other money would/could be invested. Why do you characterize it as, "doing nothing much?" Just wondering what your perception of the situation is.

[Htown Harry]

Originally Posted by Walt34

457(b) plans are...available immediately upon normal retirement without age restrictions...

Actually, to be more precise, the 457 funds are available upon separation of service from the employer. There's no "retirement" test that I'm aware of. Regardless, you hit the key point: there's no penalty for withdrawals before 59-1/2.

That's potentially a big plus for ER planning.

I have some 457 funds in an account that my former govt. employer did not require to be transferred out when I left the company. An option I'm looking at in my ER withdrawal scenarios (beginning at age 55 or so) is to use 457 withdrawals and part-time work act as a cushion until IRA withdrawals, SSA payments, a pension and required minimum distributions become part of my income stream. These other income streams become either possibilities or requirements at ages 59-1/2, 62, 65 and 70-1/2, respectively.

YMMV - taxable accounts are currently a relatively small slice of my retirement pie. If that changes, I think following the conventional wisdom of relying on taxable savings for the earliest withdrawals will work out more favorably.

[kyounge1956]

Originally Posted by Walt34

457(b) plans are for city and county employees, and perhaps non-profits, I don't know about that. Very similar to TSP and IRA, except that the funds are available immediately upon normal retirement without age restrictions. You can't contribute to both a 457(b) and an IRA (I did in 1984 but they stopped that the next year) as it was a double tax dodge.

The last three years before normal retirement you can use what they called a "catch-up provision" and contribute up to twice the normally allowed amount - I forget what that was - and keep on doing so for as long as you're still working. "Normal" retirement is defined by the employer, in my case 25 years, later lowered to 20 years.

I also have a 457 plan. Maybe they differ from city to city, but I believe with ours, unless you roll it over into an IRA when you leave City employment, all the tax becomes due, including the extra penalty if you are under 59-1/2. With ours there are two kinds of "catch-up" contributions: you can either contribute an extra $5000 a year if you are over 50, or up to double the usual contribution if within 3 years of retiring, but not both.

I hope you only mean you can't contribute to a 457 and a deductible IRA because I have been contributing to the both the 457 and a Roth IRA for 5 or 6 years now. If that's a no-no, I'm in big trouble.

[Walt34]

Originally Posted by kyounge1956

I hope you only mean you can't contribute to a 457 and a deductible IRA because I have been contributing to the both the 457 and a Roth IRA for 5 or 6 years now. If that's a no-no, I'm in big trouble.

Sorry, should have been more specific, I meant deductible IRA. I put $2k in one in 1984 because I was living with my mother after the divorce and saving the down payment for a house. That year it was the only tax deduction I could get - that I knew of anyway - and still save the cash for the down payment. It got me a $1K reduction in taxes that year. When I'm 59 1/2 I'll try to talk my tight-fisted DW into spending it on something fun, foolish, and irresponsible, like a round-the-world cruise. The minute my ex got her half of the equity in the house she spent it on a six-week trip to Europe.

Talk about delayed gratification!

[kyounge1956]

Originally Posted by Walt34

Sorry, should have been more specific, I meant deductible IRA.(snip)

Whew! I'm glad to hear that!

[kyounge1956]

Originally Posted by Htown Harry

Actually, to be more precise, the 457 funds are available upon separation of service from the employer. There's no "retirement" test that I'm aware of. Regardless, you hit the key point: there's no penalty for withdrawals before 59-1/2.(snip)

It was news to me that you don't have to be 59-1/2 to use money from the 457, but I checked on my employer's website and there's no mention of a minimum age there. With our plan, once you leave city employment you can take a lump sum, periodic payments, lump sum + periodic payments, leave it in your account or roll it over into an IRA. The first three are taxable, but it says nothing of penalties if you are under 59-1/2. You do have to start taking distributions no later than age 70-1/2, like an IRA. I guess I assumed it also had a minimum age, like an IRA. I stand corrected.