457 plan

[Maggy]

Hi everyone. I am brand new here and I need some advice. We save over 60% of our income, have a Vanguard account, I have TIAA-Cref at work and my wife has a pension plan. My wife is a teacher which gives her access to a 403B which we max out. They are now offering her a 457 plan in addition to the 403B. Apparently, there is no penalty for early withdrawal from that. Does anyone know anything about these plans? Should we put some money into that too? Thanks!

[fosterscik]

My DW and I both had access to 457s in addition to our 403b accounts. There were a great help to us because we had maxed out our 403bs. 457s allowed us to up our pretax contributions to retirement. Yes you can withdraw money but be aware there is an age dependent penalty (in our plan you had to be 55 to avoid a 10% penalty).

One nice wrinkle and a reason to tax defer rather that invest after tax money: in my state I avoided Federal and State income taxes on contributions and was able to roll over the accounts to IRAs when I/we retired. In our state all retirement income is tax free (So I permanently avoided paying any State income tax on those earnings) and could pay Federal taxes at a lower rate once no longer having salaries.

Should you contribute? I would say only if your 403B is maxed out or if the 457 has better investment options that your 403B. Tax consequences should not effect that choice because I believe most states treat 403B/457/taxable-deferred-IRAs equally. If I'm wrong about that you may need to think again.

[LRDave]

Hi - welcome to the forum!

The main thing is that (if you can afford it) you can basically double your tax-sheltered savings.

My wife is a retired educator and we maxed out her savings for the five years before her retirement. As she was over 50, that was about $48K (a bit less, that was the last year's limit) per year. This was 2011-2016, so the savings were able to be put to work in a good investing period. This was a real difference-maker, as we had some catching up to do towards the end.

[steelyman]

I had access to both 403(b) and 457 plans and maxed out both. At one time, the annual contribution limit was combined but that changed in the early 2000s at which point I began contributing to the 457 and still have the account.

Our plan’s withdrawal rules were not age-based like a 403(b) but rather separation from employment, which is a big help for anyone looking toward an early (pre-59.5) exit.

The 457 investment choices in our plan are limited but include a stable value fund which is a bonus. I use that, an S&P 500 index and Russell 2000 index fund.

If you don’t get an employer match the 457 is especially helpful.