To 403(b) or not to 403(b)? That is the question.

[juicemex07]

I recently took a job for a school district, the state automatically enrolled me in a pension that has both a typical pension component and a 401(k) and/or 457 component (the paperwork constantly mentions the both of them together so I can't figure out if I pick or they give me one or the other)

In addition to the pension I mentioned above the district also offers separately a 403(b) or 457 plan (my choice), and my question to "the reddit" is should I open one? I won't have access to the 401(k)/457 pension website until I start having paycheck deductions toward it to open the account. I was originally just going to ignore the 403(b) and act like the 401(k)/457 was the focus of my contributions so I wouldn't be splitting contributions between two similar retirement accounts.

Sidebar: if I went with the additional 403(b) or 457 account they have a lot of vendors, two major types: annuities, and mutual funds. I'm not too hot on the annuity vendors, but among the mutual fund vendors are Fidelity and Vanguard, who managed my 401(k) when I was employed elsewhere and I was always happy with them.

 

[ctct123]

@juicemex07 Use up as much tax advantaged space as you can. Mutual funds over annuities.

 

[into_the_wilderness]

@juicemex07

In addition to the pension I mentioned above the district also offers separately a 403(b) or 457 plan (my choice), and my question to "the reddit" is should I open one?

401(k) and 403(b) both share the same limit, so you're going to want to figure out which plan is better and stick with that.

457(b) has a separate limit. If you can afford to max both, go for it.

Sidebar: if I went with the additional 403(b) or 457 account they have a lot of vendors, two major types: annuities, and mutual funds. I'm not too hot on the annuity vendors, but among the mutual fund vendors are Fidelity and Vanguard, who managed my 401(k) when I was employed elsewhere and I was always happy with them.

Yes, both Fidelity and Vanguard are good choices. Fidelity offers a 457(b) plan but Vanguard does not.

Review your vendor list and compare to: https://403bwise.org/advocacy/rating_system

 

[adafitchfe]

@juicemex07 Husband and I are both decades long school employees. I chose the lowest contribution pension so I could focus on other things. I currently max out the 457 and have it invested in a few decent funds. The big plus is the fees are extremely low and you can access the funds with zero penalties when you leave employment (regardless of age).

I also do a 403b through VG. Technically you can max out both 457 and 403b, which is amazing except I can’t imagine actually having enough income to do that. The 403b has far more options for index funds but there are more fees and you can’t access it until 59.5.
So I do pension, then max my Roth, then max my 457 and then what is left goes in the 403b. Husband does the same thing.

 

[postmalone]

@juicemex07 You should call HR because there is no way they are giving you a pension and 401k unless there is no contribution on their part. Typically you have to choose if both are available.

 

[juicemex07]

@postmalone From my paperwork "this is a plan that pairs a pension with a savings plan. The savings plan enrolls you in a state 401(k) plan and 457 plan. A pension guarantees you a monthly benefit after meeting age and service requirements. The retirement system manages your pension while you manage your 401(k) and 457 plans"

 

[postmalone]

@juicemex07 Yes, i get it but that does not answer the question of do they match in the 401k and is this a choice between the two. It would be unicorn level to get both a matching 401k and pension now a days. So figure out if they do match, do you have to choose (I work for the state and you get the choice but not both). I chose pension. My 55 year old coworker hired at same time as me chose 401k where they match a certain percent as that makes more sense for his age. They also offer a deferred comp which is like the plans being offered to you. It is true that you manage these and your 401k yourself but that blurb doesn't explain the above.

 

[juicemex07]

@postmalone Oh lol, I thought you said it couldn't exist . No, so they match my pension at the same level as my contribution. Paperwork says myself and my employer pay 6.2% each for the pension, for the 401(k) it gives the example that I could contribute 2% and they contribute 1% to the 401(k).

They do give another example in written words (so no chart) and the example they give is the same 6.2% for the pension, and the example employee contributes 4% to the 401(k) and the district contributed 3%, so it leads me to believe they contribute 1% less than me

 

[postmalone]

@juicemex07 Interesting that your employer has a pension match. My pension is the old school one where I contribute to the pension system and then stop after so many years (10). It is calculated on years of service and highest 3 years of salary. So mine is a defined benefit plan. Most teachers in the US have this but the combo for your state maybe a way to water down this benefit or maybe it works out better for you in long run.

 

[lovemyangel]

@postmalone I have a blended plan too. My employer puts in 8% into a 401(a) and I put in 7% into the state pension (the employer puts into the pension too I think but we don’t really see that contribution). The pension comes back as 2%x years of service x highest average salary. If you don’t want to contribute as much you can pick a plan where the employer just contributes 9% into a 401(a) and you contribute nothing. Both options also let you contribute to a 403(b) and 457(b). I laugh when people say to max out all the tax advantaged accounts since it would be a ton of money for someone in my position.

 

[dinkold]

@juicemex07 The beauty of the 403B is that the limits are much higher than the 401k. So if you get in a situation in the future where you are able to defer a great % of your salary it would be a big help for a large annual contribution.

 

[life_hope_love]

@juicemex07 Check to see if they have the Roth option for the 403 and 457 accounts.

 

[shawnab]

@juicemex07 This is a huge opportunity if you manage to max out both 401k and 403b accounts. You'll pay almost no taxes.

 

[reformedpowerhouse]

@shawnab The limit of 20,500 is shared between 401k & 403b. I suspect OP means 401a; can't imagine having both 403b and 401k at the same employer. 457 is where the sauce is at, see millionaire educator for the best plays there

 

[shawnab]

@reformedpowerhouse Good catch. You are right about the combined contribution limit.

I worked for a university once that offered two retirement accounts 401k and another one (might have been 401a or 457) that could both be maxed out. I remember asking HR about this. Alas, they told me it was not available for postdocs who do the actual work at universities. >.

 

[kompresor]

@reformedpowerhouse Hey! I will check out “millionaire educator”, but in a nutshell, can you explain why 457 is the better option? I have both, and the way it was explained to me is that the 457 is pretax and the 403b is post tax so I opted to pay taxes now as opposed to later but now I’m not so sure. Thanks for your input in advance!

 

[reformedpowerhouse]

@kompresor I have both 403b & 457b (governmental) it sounds like you'd be the same. You can access 457 when you separate from service, so if you leave this employer before 59.5 years old you could access the 457 funds with no penalty. Basically 457 gives you options that 403 doesn't (and you could treat the 457 like a 403 and roll it into an IRA - but that would lock it up until 59.5). Note: I know there are ways around accessing before 59.5 but I haven't dug deep into 72t & other options (millionaire educator does dive in but I skipped that until it applies to me, likely never).

 

[gani]

@juicemex07 Make sure you understand the fine print of the 457b. Some can be taken by the company if they file for bankruptcy.

 

[daniel7799]

@juicemex07 Curious as to what States offer 401k with employer match in addition to 403b and 457b?

 

[juicemex07]

@daniel7799 State of Michigan, the 403b and 457 are independent of my state benefits and are through the district itself