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Which retirement plan should I choose- 403(b), 457(b), or 401(a)?

The company that I work for offers 403(b), 457(b), and 401(a) retirement plans. Which one is the best plan, or is it wise to open all three accounts? I have a 401(k) plan with a different company that I work for and I contribute 6% of my salary to this plan. I also have a Roth IRA account and I make the maximum contributions every year. I'm 21 years old and I do not plan on staying with both companies for the long-term. I have no debt. I have an emergency fund, and about $104,000 in Vanguard's mutual fund managed by a financial advisor.

Career / Compensation, Debt, Financial Planning, Retirement, 401(k)
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May 2018

Great question, and it gets a bit confusing when you have all of these offerings.  Typically you would see a 457 and 401(a) combined, because a 457 only allows $18,500 in total contributions.  In a 401(k), you can contribute $18,500 and then the employer can add on top of that in profit sharing.  So employers will layer on a 401(a) to a 457 so the total contributions maxes out at $55,000 just like a private company's 401(k).

Double check for me if the 457 is a 457(b) or 457(f).  You said 457(b) which would be great.  If it turns out to be a 457(f) then those come with additional rules, because they are intended for highly compensated individuals and typically require you work a certain number of years.  If you are down to a 403(b) or 457(b) then check the investment options.  403(b) plans are unfortunately still often in group annuity plans which are more expensive.  If one is a group annuity and one is a mutual fund plan then go with the lower cost option.

It is very important to note here than 457(b) plans have one really nice perk.  In other pre-tax accounts (i.e. 401(k), Traditional IRA, 403(b), etc) you are penalized for taking withdrawals prior to 59 1/2.  You are NOT penalized with a 457(b).  So if all else is equal do the 457(b) with your employer contributing to the 401(a).

Hope that was helpful, let me know if I can be of further help.

Matt Ahrens, CIMA®

May 2018
May 2018
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May 2018