Should we max them all out 401A and 457B?

[justlearning]

Hello,

My wife and I in our mid 30s - no kids, no significant debt. My wife recently finished fellowship and took an attending position.

She will me making around 300K. Her employer offers;

403B - Pre-tax plan contribution up to $18000 a year.

401A - After-tax plan, She was told she can contribute up to $8100 this year.

457B - Pre-tax Plan contribution up to $18000 a year.

I also started working in professional field making around 100K and my employer offers standard 401K

We are just establishing our retirement accounts this year.

We have some emergency fund established and some saving in the bank account?

We are planning purchase a home sometime next year so want to save money for that. (at least 20% down payment)

Currently we are planning to max out my 401K and her 403B. However i am not sure about 401A and 457B options.

I guess my question is should we max 401A and 457B as well? Or save the money for making more down payment for a home?

Thank you.

[childay]

justlearning wrote:

457B – Pre-tax Plan contribution up to $18000 a year.

Click to expand...

Is the 457B plan governmental or non-governmental?  I assume the governmental plans are mostly at state medical schools.

https://www.whitecoatinvestor.com/should-you-use-your-457b/

[StarTrekDoc]

Congrats!  Yes max out everything as possible (while building the 20% down).

Double check with her HR on the 401A limit -- that number seems low.

Also with 401a defined benefit plan; check if you can make distribution from it to a Roth IRA -- where you can earn tax free to your heart's content.

 

[justlearning]

childay wrote:

justlearning wrote:

457B – Pre-tax Plan contribution up to $18000 a year. 

Click to expand…

Is the 457B plan governmental or non-governmental?  I assume the governmental plans are mostly at state medical schools.

https://www.whitecoatinvestor.com/should-you-use-your-457b/

Click to expand...

I just checked it. It is a non-qualified supplemental saving plan non-governmental. She works for non-profit community health center.

[justlearning]

StarTrekDoc wrote:

Congrats!  Yes max out everything as possible (while building the 20% down).

Double check with her HR on the 401A limit — that number seems low.

Also with 401a defined benefit plan; check if you can make distribution from it to a Roth IRA — where you can earn tax free to your heart’s content.

 

Click to expand...

Yeah i checked 401A limit. It says maximum for highly  compensated employees is $8100 based on IRS guidelines.

According to definition "Highly Compensated employee is making over $120000" can contribute up to 3%  but IRS caps the high limit at $270000 max so 0.03*270000 comes to $8100.

I will follow up distribution part to Roth.

 

Thank you.

[spiritrider]

A bottom baseline number for retirement plan contributions is 15% of gross income. Now add to the facts that she is only now attending in mid her thirties. Couple that with as a higher income as smaller percentage of your retirement income will come from SS, you need more like 20% as a minimum. 20% of $400K is $80K. Her 401a $8.1K + 403b $18K + 457b + your 401k $18K = $62.1K, barely adequate.

There are two fundamental downsides to a 457b. Your balances are assets of the organization and subject to their creditors. So you want to check out the financial standing of the organization. Also, the investment options are more important for a non-governmental plan, because you can only rollover such a plan to another 457b. Fortunately, in many cases 457b plans tend to have lower costs that 403b plans. Check out that 457b plan.

What StarTrekDoc was referring to with his reference a Roth IRA was that a 401a can, but is not required to offer after-tax contributions and in-service withdrawals/rollovers. This allows the so called Mega Backdoor Roth, which allows you to make after-tax contributions and roll them over to a Roth IRA. If they don't offer the in-service option they may offer the next best thing, an In-plan Roth Rollover (IRR) to a designated Roth sub account. You need to check with your 401a plan administrator to see if they allow either one of these options..

If you find that you can not meet you retirement plan savings goals with tax-deferred/advantaged retirement plans, then there are always taxable investments.

However, you should not thees funds for a house down payment. You have heard the expression "live like a resident". With a such a large jump in income there is no reason why you can't do both. I suggest you live on no more than 1/3 of your gross income. Dedicating the remainder to retirement plan contributions, student loan payments and saving for a down payment. Resist the urge to splurge now.

[justlearning]

Thank you very much. This is very helpful.

[AnotherSecondOpinion]

I agree, max out everything you can now.  Besides the 401a, contributing to the other retirement accounts will give you a huge tax break since your combined income will be pretty high.  With that in mind, an extra $8,100 in post-tax money to the 401a shouldn't be too much of a stretch. Start doing it now before you get used to the higher income.