Should I invest in 457(b) def comp?

[Legally_dead]

My government give has a 403(b) plan where 7% of my pay is automatically invested in the plan. After 8 years (6.5 to go), my employer matches the account by 200%.

My gig also offers a 457b def comp plan, but I do not participate. There is no match.

Any suggestions on how to decide whether/how much I should invest in def comp? If I contribute the max 18k, I will have to withdraw that amount from my brokerage account and pay capital gains taxes to cover expenses. We use almost all of my take home. I haven't participated to date because my understanding is the expenses are high (1.5%) on the underlying investments in the plan.

Thanks in advance for your thoughts.

 

[Scuba]

My government give has a 403(b) plan where 7% of my pay is automatically invested in the plan. After 8 years (6.5 to go), my employer matches the account by 200%.

My gig also offers a 457b def comp plan, but I do not participate. There is no match.

Any suggestions on how to decide whether/how much I should invest in def comp? If I contribute the max 18k, I will have to withdraw that amount from my brokerage account and pay capital gains taxes to cover expenses. We use almost all of my take home. I haven't participated to date because my understanding is the expenses are high (1.5%) on the underlying investments in the plan.

Thanks in advance for your thoughts.

I did contribute the max to my 457b, but was able to do so using my compensation rather than my taxable portfolio. The advantage in my case is that the 457b grew tax-deferred but upon leaving the company, funds can be withdrawn either as a lump sum or as periodic payments. I haven’t started drawing on it yet, but think it will be a helpful bridge between ER at age 56 and taking SS or tIRA distributions. My 457b didn’t have a match either. Your 403b sounds like a great deal.

 

[gayl]

Legally_dead, is the 403b in lieu of social security?

 

[Legally_dead]

Gayl--No, I believe I still get SS as my employer withholds FICA taxes. Another detail I left out about the 403b is that it has a guaranteed 7% interest on contributions.

 

[gayl]

In that case, I personally wouldn't put into 457 especially since 403b has same deferred limit (building up to that 18k w/ half of all raises. ... marathon not sprint). But many disagree with me so take a poll

And, yeah, from what I know, if paying into SS then not under WEP / WPO / GPO

 

[Walt34]

After 8 years (6.5 to go), my employer matches the account by 200%.

(Bolding mine.)

Two hundred percent match after 8 years? If that's not a typo I'd be dumping every nickel I could find in there!

 

[Legally_dead]

Walt34--Not a typo, but it has to be 7% of pay. I can't contribute less and I can't contribute more. I would love to be able to do more.

 

[copyright1997reloaded]

Walt34--Not a typo, but it has to be 7% of pay. I can't contribute less and I can't contribute more. I would love to be able to do more.

Are you sure on the details of this? That is, is the 200% match ONLY if you have EXACTLY 7% taken out, or is the 200% match only on the FIRST 7% taken out?

 

[gayl]

Walt34--Not a typo, but it has to be 7% of pay. I can't contribute less and I can't contribute more. I would love to be able to do more.

ok. I take it back. If you can only contribute 7% to get the 200% match, then do 7% to 403b and 1/2 of all raises to the 457 and 1/2 to lifestyle creep until you hit 18k IMHO

 

[orangehairfella]

Remember that the 18k limit isn’t split between a 403 and a 457, it’s 18k in EACH for a total of 36k a year in tax deferred accounts. If you have the money, max out both.

 

[nun]

Remember that the 18k limit isn’t split between a 403 and a 457, it’s 18k in EACH for a total of 36k a year in tax deferred accounts. If you have the money, max out both.

Max the 403b first and then contribute to the 457. The 457 has the advantage that you can access it without penalty after you leave your job....you don't have to wait until 59.5. I would double check on the fees you mentioned.

FYI a 403b cannot be used as a replacement for SS. If a state opts out of SS they must offer a state pension and that is generally organized under 401a.

 

[Niuatoputapu]

Max the 403b first and then contribute to the 457. The 457 has the advantage that you can access it without penalty after you leave your job....you don't have to wait until 59.5. I would double check on the fees you mentioned.

+1 sort of

I would max out the 403b, then max out the 457b to the extent the money is in the 22% or higher marginal Federal tax bracket. If the contribution money is 12% marginal tax money, then I would max out the 403b, then max a Roth IRA, then probably invest after-tax.

I used my 457b balances to fund my first years of retirement. There are other ways to avoid the 10% penalty of 403b/401ks, but the 457b is even easier.

 

[fosterscik]

I also used a 457b to help my progress to retirement. In my case I was in the 15% marginal bracket and the deferral didn't help with Federal taxes, BUT I could roll the 457 into an IRA; in my state retirees do not pay state taxes on IRA withdrawals.

That was after maxing out my 403b, Roth and HSA contributions...