403(b) vs 457(b)

[wideopenspaces]

My husband and I have the same employer that sets aside 14% of our income in a 401a plan. We also have access to 403b and 457b (governmental) plans as well. This year we are going to each max out one of those accounts for ourselves. My question is-which one is better? Please correct me if I am wrong, but I think the 457b is more flexible because you can pull out money at any age, so it seems like it's the account we'd want to fund first, in case we decide to retire early (I'm only a year out from residency, so that's pretty far off the radar for me). But when I read about them, it seems most people fund the 403b first, and then start filling up the 457b if they have extra money to throw at retirement and I'm wondering if I'm missing something. In the next few years we hope to be able to fund both of them, but in the mean time, does it matter which one we start with?

[JKG]

Check out WCI's post on this topic from December 29, 2015

[Joseph]

Good questions. You have the good governmental 457s.

Check out the recent blog post:WCI 457 Q&A

[tex]

I would argue that if you are considering retiring early (or at least making funding order decisions based on the possibility) a typical physician would need a savings rate to fund both, making this a moot point. That depends of course on lots of things you don't mention...

As an aside, that might make for an interesting post for the ultra-frugal ultra-early FI bloggers - Go Curry Cracker, Mad Fientist, etc - strategies for high earners with access to 457 who want to retire at 40

 

I have a similar 401(a) situation - 7% of my salary employer contribution, I control the investments. 14% is pretty sweet! I believe fed law caps it at an income around 265k - an additional 37k of essentially free pre-tax space makes your job pretty competitive and probably way more stable than a small private group.

In regards to your question, I'm a touch risk averse, so I'm filling 403b preferentially over 457, all else equal. Not so much for the distribution issues discussed in the WCI post, but the portability - having a spouse in NIH-dependent research means there is a reasonable chance I'll have to move at some point, maybe to a place where another 457 job that I could roll those funds into (if even there at all) is not the most desirable job. To me the downsides aren't significant enough to give up that tax-deferred space in favor of a taxable account though.

 

[wideopenspaces]

Yes, I had read the post from last month. It didn't really talk about order of funding though . . . just said you should do both. Between the 401a money and funding either both 403b's or both 457b's, we'll be putting 25% into retirement (we also "save" another 10% each year that we put towards extra mortgage payments. It's our only debt and I want to pay it off in 10-15 years). If we fund all the accounts, that would be 40% into retirement. I think we might actually hit that rate (or at least come pretty close) in a few years, but I'm OK if we don't because I don't want to retire at 40. Probably not even 50. . . I work part time (outpatient, no weekends, no call) and I have like the perfect work-life balance and could probably do this forever.  I'm also a psychiatrist working in an academic institution so the pay is not the best (OK, I feel like I make a sh*t-ton of money, but lots of people on the forum easily make 2x what my husband and I make together) but that means we don't need as much as lots of other docs to have a great retirement that maintains our current standard of living. Which brings me back to the original question about order of funding. I think I'll start with the 403b this year and then maybe next year go halfsies on each account.  I'm just really wanting to be able to say that we maxed out a retirement account-it's a milestone for us and I'm excited about it.

[childay]

Agree with tex re: the portability of 403B.  That can be important if you change jobs!  Learn about the distribution options for the 457B before you sign up for that.

[Bott1637]

Given your plan is governmental I see no reason to use the 403 first. A governmental plan has all the same rollover options as does a 403b. Unless the distribution options suck I'd fund the 457,  especially if early retirement is the goal. Personally,  I like the Idea of halfsies as life plans change but if you wanna max one I'd do the 457.  The worst that could happen is you change jobs and it forces a lump sum distribution on you. But given it is governmental you can roll that to an IRA the downside of which is that it messes with your backdoor ROTH.

[wideopenspaces]

It's funny to re read my post from 4 years ago :-) In hindsight, I should have funded the 457 first because it has the same distributions options as you E5797. I just left that job and now I don't have access to that kind of space anymore and I wish I would have fully funded the 457 each year because now I don't have that option. So that's my advice, having been there, done that.