401k vs 457b question

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Topic Author
Noah_M
Posts: 15
Joined: Mon Nov 22, 2021 10:27 am

401k vs 457b question

Post by Noah_M »

I'm employed through a non-profit that offers both a 401k with matching and a 457b plan.

So far I have only been using the 401k, but after reading about 457b's, I can't believe how good they sound. As far as I understand, there are similar to 401k's in that you can invest money pre-tax, and it gets taxed as ordinary income upon withdrawal. However, the difference is that you can apparently withdraw money within a period after you leave the company even if you are under 59.5. This almost seems too good to be true! Pre-tax investing with no minimum age?! Heck yes!

Is there anything I should be aware of/any potential downsides? I would likely switch my 15% into my 401k to something like 8-10% to 401k (to ensure I get the match) and about 5-7% into the 457b assuming there are no significant downsides.

My goal is not necessarily to retire prior to 60 years old, but it would sure be nice to have the option via using withdrawals from the 457b!

Thanks in advance for your thoughtful responses!

Noah
pizzy
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: 401k vs 457b question

Post by pizzy »

Noah_M wrote: Mon Nov 29, 2021 11:37 am I'm employed through a non-profit that offers both a 401k with matching and a 457b plan.

So far I have only been using the 401k, but after reading about 457b's, I can't believe how good they sound. As far as I understand, there are similar to 401k's in that you can invest money pre-tax, and it gets taxed as ordinary income upon withdrawal. However, the difference is that you can apparently withdraw money within a period after you leave the company even if you are under 59.5. This almost seems too good to be true! Pre-tax investing with no minimum age?! Heck yes!

Is there anything I should be aware of/any potential downsides? I would likely switch my 15% into my 401k to something like 8-10% to 401k (to ensure I get the match) and about 5-7% into the 457b assuming there are no significant downsides.

My goal is not necessarily to retire prior to 60 years old, but it would sure be nice to have the option via using withdrawals from the 457b!

Thanks in advance for your thoughtful responses!

Noah
Is the 457 governmental?
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Topic Author
Noah_M
Posts: 15
Joined: Mon Nov 22, 2021 10:27 am

Re: 401k vs 457b question

Post by Noah_M »

pizzy wrote: Mon Nov 29, 2021 11:41 am
Noah_M wrote: Mon Nov 29, 2021 11:37 am I'm employed through a non-profit that offers both a 401k with matching and a 457b plan.

So far I have only been using the 401k, but after reading about 457b's, I can't believe how good they sound. As far as I understand, there are similar to 401k's in that you can invest money pre-tax, and it gets taxed as ordinary income upon withdrawal. However, the difference is that you can apparently withdraw money within a period after you leave the company even if you are under 59.5. This almost seems too good to be true! Pre-tax investing with no minimum age?! Heck yes!

Is there anything I should be aware of/any potential downsides? I would likely switch my 15% into my 401k to something like 8-10% to 401k (to ensure I get the match) and about 5-7% into the 457b assuming there are no significant downsides.

My goal is not necessarily to retire prior to 60 years old, but it would sure be nice to have the option via using withdrawals from the 457b!

Thanks in advance for your thoughtful responses!

Noah
Is the 457 governmental?
I don't believe so. It is a not-profit hospital system.
runner3081
Posts: 5994
Joined: Mon Aug 22, 2016 3:22 pm

Re: 401k vs 457b question

Post by runner3081 »

In a nutshell, hospital goes bankrupt and/or gets bought out, your 457B is available to creditors and you would have to get in line to see those funds .

I also have a private 457B, but am comfortable with the risk.
pizzy
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: 401k vs 457b question

Post by pizzy »

Noah_M wrote: Mon Nov 29, 2021 12:22 pm
pizzy wrote: Mon Nov 29, 2021 11:41 am
Noah_M wrote: Mon Nov 29, 2021 11:37 am I'm employed through a non-profit that offers both a 401k with matching and a 457b plan.

So far I have only been using the 401k, but after reading about 457b's, I can't believe how good they sound. As far as I understand, there are similar to 401k's in that you can invest money pre-tax, and it gets taxed as ordinary income upon withdrawal. However, the difference is that you can apparently withdraw money within a period after you leave the company even if you are under 59.5. This almost seems too good to be true! Pre-tax investing with no minimum age?! Heck yes!

Is there anything I should be aware of/any potential downsides? I would likely switch my 15% into my 401k to something like 8-10% to 401k (to ensure I get the match) and about 5-7% into the 457b assuming there are no significant downsides.

My goal is not necessarily to retire prior to 60 years old, but it would sure be nice to have the option via using withdrawals from the 457b!

Thanks in advance for your thoughtful responses!

Noah
Is the 457 governmental?
I don't believe so. It is a not-profit hospital system.
Max 401k before considering non-gov 457.

I wouldn't invest in a non-governmental 457 unless you truly understood the risk and were in a very high tax bracket.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Topic Author
Noah_M
Posts: 15
Joined: Mon Nov 22, 2021 10:27 am

Re: 401k vs 457b question

Post by Noah_M »

runner3081 wrote: Mon Nov 29, 2021 12:26 pm In a nutshell, hospital goes bankrupt and/or gets bought out, your 457B is available to creditors and you would have to get in line to see those funds .

I also have a private 457B, but am comfortable with the risk.
Got it, thanks!
Topic Author
Noah_M
Posts: 15
Joined: Mon Nov 22, 2021 10:27 am

Re: 401k vs 457b question

Post by Noah_M »

pizzy wrote: Mon Nov 29, 2021 12:37 pm
Noah_M wrote: Mon Nov 29, 2021 12:22 pm
pizzy wrote: Mon Nov 29, 2021 11:41 am
Noah_M wrote: Mon Nov 29, 2021 11:37 am I'm employed through a non-profit that offers both a 401k with matching and a 457b plan.

So far I have only been using the 401k, but after reading about 457b's, I can't believe how good they sound. As far as I understand, there are similar to 401k's in that you can invest money pre-tax, and it gets taxed as ordinary income upon withdrawal. However, the difference is that you can apparently withdraw money within a period after you leave the company even if you are under 59.5. This almost seems too good to be true! Pre-tax investing with no minimum age?! Heck yes!

Is there anything I should be aware of/any potential downsides? I would likely switch my 15% into my 401k to something like 8-10% to 401k (to ensure I get the match) and about 5-7% into the 457b assuming there are no significant downsides.

My goal is not necessarily to retire prior to 60 years old, but it would sure be nice to have the option via using withdrawals from the 457b!

Thanks in advance for your thoughtful responses!

Noah
Is the 457 governmental?
I don't believe so. It is a not-profit hospital system.
Max 401k before considering non-gov 457.

I wouldn't invest in a non-governmental 457 unless you truly understood the risk and were in a very high tax bracket.
Ahh, I see. I'll stick with the 401k for now in that case. Thanks!
pizzy
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: 401k vs 457b question

Post by pizzy »

Noah_M wrote: Mon Nov 29, 2021 12:46 pm
pizzy wrote: Mon Nov 29, 2021 12:37 pm
Noah_M wrote: Mon Nov 29, 2021 12:22 pm
pizzy wrote: Mon Nov 29, 2021 11:41 am
Noah_M wrote: Mon Nov 29, 2021 11:37 am I'm employed through a non-profit that offers both a 401k with matching and a 457b plan.

So far I have only been using the 401k, but after reading about 457b's, I can't believe how good they sound. As far as I understand, there are similar to 401k's in that you can invest money pre-tax, and it gets taxed as ordinary income upon withdrawal. However, the difference is that you can apparently withdraw money within a period after you leave the company even if you are under 59.5. This almost seems too good to be true! Pre-tax investing with no minimum age?! Heck yes!

Is there anything I should be aware of/any potential downsides? I would likely switch my 15% into my 401k to something like 8-10% to 401k (to ensure I get the match) and about 5-7% into the 457b assuming there are no significant downsides.

My goal is not necessarily to retire prior to 60 years old, but it would sure be nice to have the option via using withdrawals from the 457b!

Thanks in advance for your thoughtful responses!

Noah
Is the 457 governmental?
I don't believe so. It is a not-profit hospital system.
Max 401k before considering non-gov 457.

I wouldn't invest in a non-governmental 457 unless you truly understood the risk and were in a very high tax bracket.
Ahh, I see. I'll stick with the 401k for now in that case. Thanks!
But definitely inquire with plan sponsor or HR to see if by chance it is a governmental plan.
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
Topic Author
Noah_M
Posts: 15
Joined: Mon Nov 22, 2021 10:27 am

Re: 401k vs 457b question

Post by Noah_M »

pizzy wrote: Mon Nov 29, 2021 1:03 pm
Noah_M wrote: Mon Nov 29, 2021 12:46 pm
pizzy wrote: Mon Nov 29, 2021 12:37 pm
Noah_M wrote: Mon Nov 29, 2021 12:22 pm
pizzy wrote: Mon Nov 29, 2021 11:41 am

Is the 457 governmental?
I don't believe so. It is a not-profit hospital system.
Max 401k before considering non-gov 457.

I wouldn't invest in a non-governmental 457 unless you truly understood the risk and were in a very high tax bracket.
Ahh, I see. I'll stick with the 401k for now in that case. Thanks!
But definitely inquire with plan sponsor or HR to see if by chance it is a governmental plan.
Good call, I will do that.
tsohg
Posts: 187
Joined: Thu Mar 07, 2013 9:30 am

Re: 401k vs 457b question

Post by tsohg »

pizzy wrote: Mon Nov 29, 2021 1:03 pm But definitely inquire with plan sponsor or HR to see if by chance it is a governmental plan.
I'd love to hear more about the risks vis-a-vis governmental vs non-governmental. The IRS 'comparison' page doesn't imply that a non-governmental plan is more risky:

https://www.irs.gov/retirement-plans/co ... 457b-plans

My wife works in a University health system and their documentation states:
(the) 457(b) Deferred Compensation Plan (is a) non-ERISA governmental plan.
Since this topic seems so murky, I'm very conservative in my reading of the above, but it does sound like it is a governmental plan, which has less risk? Or is it saying it's a non "ERISA governmental plan" and therefore a non-governmental plan? :oops: I would love for some other BH folks who understand the risk profile to expound on the topic. Thanks!
pizzy
Posts: 4339
Joined: Tue Jun 02, 2020 6:59 pm

Re: 401k vs 457b question

Post by pizzy »

tsohg wrote: Mon Nov 29, 2021 2:25 pm
pizzy wrote: Mon Nov 29, 2021 1:03 pm But definitely inquire with plan sponsor or HR to see if by chance it is a governmental plan.
I'd love to hear more about the risks vis-a-vis governmental vs non-governmental. The IRS 'comparison' page doesn't imply that a non-governmental plan is more risky:

https://www.irs.gov/retirement-plans/co ... 457b-plans

My wife works in a University health system and their documentation states:
(the) 457(b) Deferred Compensation Plan (is a) non-ERISA governmental plan.
Since this topic seems so murky, I'm very conservative in my reading of the above, but it does sound like it is a governmental plan, which has less risk? Or is it saying it's a non "ERISA governmental plan" and therefore a non-governmental plan? :oops: I would love for some other BH folks who understand the risk profile to expound on the topic. Thanks!
https://www.irs.gov/retirement-plans/no ... tion-plans
Vanguard/Fidelity | 76% US Stock | 16% Int'l Stock | 8% Cash
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