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403b vs Gov-457b, which to fund first?

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  • 403b vs Gov-457b, which to fund first?

    Posted this as a comment, but the email I got suggested posting on the forums for more feedback, so here it is:

    I’m a new intern and my hospital offers both a 403b and a 457b (governmental), both with Roth options. They do not match. I’m planning on maxing a Roth IRA first. I’d like to contribute to either the 403 or 457 with any further savings.

    From what I understand, beyond the differences in investments between them, the only difference is that the 457 can be withdrawn at any time penalty free? Is there any reason to go with the 403 over a governmental 457?

    For reference, the 457 distribution options are:
    – Full lump-sum distribution
    – Partial lump-sum distribution
    – Periodic payments (monthly, quarterly, semi-annually or annually)
    – Partial lump-sum distributions combined with periodic payments
    – Purchase of an annuity with all or a portion of the account balance
    – Roll over into an eligible retirement plan such as a 401(a), 401(k), 403(b), governmental 457(b), traditional IRA or Federal Employees Thrift Savings Plan that accepts such rollovers.*

    Funds available in the 457(b) – http://www.varetirement.org/dcp/investments/fund-profiles.html
    What I’d use most likely:
    – BlackRock’s LifePath Index 2055 Fund O (?) (0.09%?) that’s the annual operating expense on this website – http://www.icmarc.org/x3333.xml?RFID=C2789

    Funds available in the 403(b) – https://nb.fidelity.com/public/nb/uva/planoptions/plandetails?planId=57818&option=planBasics
    What I’d use most likely:
    – Vanguard Target Retirement 2055 Fund Investor Shares (VFFVX ) (0.16%)

    From what I’ve read I prefer Vanguard to other mutual fund companies, but the Blackrock ER seems very low unless I’m reading it wrong, and with the lack of early withdrawal penalties in the 457, is there any reason to fund the 403?

    Would love to hear some opinions/get advice. Thanks!

  • #2
    Since you are in governmental rather than NPO, your options for the 457 are expanded. I would go with the 457, also.

    Will let others comment on the investment choices as I'm likely to disagree and, as everyone here is aware, I always try to go along with the crowd and be very agreeable  :lol:
    Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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    • #3
      Do you have an employer match in the 403b? If so the 403b should be your top funding priority. Free money is the best rate of return.

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      • #4
        Unfortunately no match in either the 403b or the 457b.

        WCI posted this in the comment thread I initially left:

        "The general rule is to fund 403(b)s before 457(b)s. The 403(b) is yours, the 457(b) belongs to your employer. You can roll a 403(b) into an IRA and convert it to a Roth IRA. I would be very surprised if you could max out one of those, much less both as a resident in addition to a personal +/- spousal Roth IRA, but if you could, then that would be fine. It sounds like you have a pretty good 457(b). But I still wouldn’t take it over a 403(b). Be sure to use the Roth options during residency. You may also want to consider using some of your savings to pay off student loans, other debt, save up a down payment etc."

        He linked to this post https://www.whitecoatinvestor.com/how-to-get-to-your-money-before-age-59-12/ as a reason why the early withdrawal isn't as much of an advantage in his eyes. Also, I believe that the 457 is able to be rolled into a Roth IRA as it's governmental.

        It seems like it's splitting hairs, and both are good options, but still welcome to any other opinions or insights!

        Comment


        • #5
          Then the next consideration is flexibility and quality of the plans. Again, given that you are working for a governmental entity, the likelihood that you would lose your 457 to a bankruptcy is extremely small. You will have more flexibility with the 457 when you leave your employer. If the 403b plan is significantly higher quality than the 457b, you might give that more weight. Otherwise, if quality of choices/cost is fairly equal, I'd go with the 457b. Personally not crazy about a TDF but if you are uncomfortable with portfolio allocations and management, it won't hurt too much for a few years.
          Working to protect good doctors from bad advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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