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401k vs 457???

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mopowers
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401k vs 457???  Reply with quote  

What are the main differences between the two (401k vs 457)? I currently contribute to a 401k, but am starting to think a 457 might be a better choice.

I'm 30 now, but I plan on retiring at 55. If I do, I can draw money out of both without penalty, correct? If so, why would I choose one over the other?
Post Tue May 28, 2013 5:57 pm
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oldguy
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Currently, the differences in the 401k, 403b, and 457 are almost non-exsitent. Over the past 30 years since they were invented and then modified to make them "more fair" they have recently evolved to 'same'. All 3 allow matching, 'Roth' investing, profit sharing (altho non-profits handle it differently), age 55 retirement, age 59 1/2 withdrawal w/o retirement, IRA rollover privelege upon retirement, and so on.

At this point, I can't think of a factor that would help your decision. Very Happy
Post Tue May 28, 2013 6:18 pm
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mopowers
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Thanks oldguy. I was told last week by a financial adviser that it'd be in my best interest to stop contributing to the 401k and instead, put those monies in a 457. But, my question is why have both if I'm not maxing one out (ie. I'd be paying fees for both)... I meet with her again tomorrow, so that will be one topic of discussion. She wasn't sure if 401k funds could be withdrawn without penalty. But, it looks as though they are, as long as I'm 55 and retired.

She also told me to open a Roth IRA and max that out first before contributing anything to the 457, because I'm likely in a much lower tax bracket currently than I will be when I'm 55. However, I've read that withdrawal of 'earnings' from a Roth IRA are subject to penalties prior to age 59.5. I'm wondering if between the ages of 55 and 59.5, I can pull out 'contributions' from a Roth IRA penalty free. In that case, I can see how the Roth IRA would benefit me.
Post Tue May 28, 2013 7:02 pm
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coaster
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You can take out the contributions (only) from a Roth any time without penalty.

I think a good question to ask your adviser is "Why?" It sounds like she hasn't explained her advice to you well enough. If she can't explain it in a way you can understand it, *and* understand how it meets your goals, then I think you should be skeptical of taking it.

~Tim~
Post Wed May 29, 2013 4:26 am
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Anton Martin
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Re: 401k vs 457???  Reply with quote  

quote:
Originally posted by mopowers
What are the main differences between the two (401k vs 457)? I currently contribute to a 401k, but am starting to think a 457 might be a better choice.

I'm 30 now, but I plan on retiring at 55. If I do, I can draw money out of both without penalty, correct? If so, why would I choose one over the other?


I would like to tell you that rather than thinking of 457 just stick to 401(k) and contribute more to it. Don't think ok withdrawing money rather just keep it safe for your retired life.
Post Wed May 29, 2013 12:07 pm
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clydewolf
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Re: 401k vs 457???  Reply with quote  

quote:
Originally posted by mopowers
What are the main differences between the two (401k vs 457)? I currently contribute to a 401k, but am starting to think a 457 might be a better choice.

I'm 30 now, but I plan on retiring at 55. If I do, I can draw money out of both without penalty, correct? If so, why would I choose one over the other?

There are two types of 457 plans -
- 457b plans are eligible plans and can be rolled to an IRA.
- 457f plans are ineligible plans and can not be rolled to an IRA.

Some advantages go to the 457b plan.
- At any time you can take a distributions from your 457 account without the 10% penalty. This would be taxable and is not paid back to the 457 plan.
- Some employer plans allow for a special "catch-up" provision. In the 3 years before you retire, you can double your basic contribution limit, example, if you were retiring in 2016 you could contribute the lesser of $35,000 or 100% of your salary.
You may contribute to both a 401k and a 457 plan, if your salary is sufficient you can contribute the $17,500 to each plan (total annual contribution of $35,000 in 2013).

Another consideration for selecting in which plans you want to participate, check out the investment options in the plan, and the cost of the investment options.

Be sure to read the Summary Plan Description (SPD) for both your 401k and your 457 plan Before you participate in the plan.
Post Wed May 29, 2013 6:47 pm
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