403(b) vs. 457 plan... what would you choose?

[anonymous_saver]

So the University that I work for offers a 403(b) plan and a 457 plan. Neither has a match, as I am part of a pension plan that the University contributes too. I already put up to the max in a Roth IRA, so I am currently trying to decide between starting a 403(b) or a 457 plan. Both plans offers different investment options, but they both include the same investment options that I want to use. So the only decision comes from the benefits/drawbacks of each plan. Any opinions?

403(b) PLAN:
How Do I Withdraw My Money?
For the most part, funds may not be withdrawn before your retirement or termination of employment. The IRS restricts when funds may be paid from your account. You may withdraw your money only under these circumstances:

You are at least age 59 1/2
You encounter a severe financial hardship (foreclosure on your home, purchase of a primary residence, college expenses for a child, or significant out-of-pocket medical expenses)
You are required to make payment to a former spouse, according to the provisions of a Qualified Domestic Relations Order
You become totally disabled
You die
Hardship withdrawals are subject to a 10% penalty tax unless they are for out-of-pocket medical expenses totaling more than 7.5% of your adjusted gross income.

Please note that IRS rules are subject to change.

What Taxes Must Be Paid When I Withdraw My Savings?
Money withdrawn is subject to federal and state income tax. Except for "rollovers," annuities, and regular installments over 10 years or more, all other payments will have 20% withheld automatically for federal taxes. If you are under age 55 when you terminate, payments that are not part of a "rollover" will be subject to an additional 10% penalty tax.

457 PLAN:
Restrictions on Withdrawals
Under the Internal Revenue Code, funds in a 457 Plan may be made available to you under one or more of the following circumstances:

upon severance from service
retirement
attaining the age of 70½
death
when you encounter an "unforeseeable emergency" as defined by IRC Section 457
Any amount you receive will be treated as ordinary income for federal tax purposes.

Payment OptionsYou may begin payments anytime following severance from service or you may wait until retirement to begin receiving payments. However, distributions must begin by April 1 of the calendar year following the year in which you turn 70½.

You will be able to access your 457 plan accumulations in a variety of ways, from cash to lifetime income. You can choose from the following payment options:

Lump-sum withdrawal
Fixed-period annuity
Lifetime annuity income
Systematic withdrawals
Minimum distribution option
Money withdrawn is subject to federal and state income tax.

What Taxes Must Be Paid When I Withdraw My Savings?Money withdrawn is subject to federal and state income tax. Except for "rollovers," annuities, and regular installments over 10 years or more, all other payments will have 20% withheld automatically for federal taxes. If you are under age 55 when you terminate, payments that are not part of a "rollover" will be subject to an additional 10% penalty tax.

[anonymous_saver]

Yes, I'm replying to myself.

I decided to go with the 457 plan because of the fact that I could take out money before I am 59 1/2 without the 10% penalty and without having to invoke rule 72t.

Just in case you were interested.

[b4freedom]

Traditionally, you get a pension plan OR a 403b. But not both. It's odd that they'd let you do both because 403b are designed to be a substitute for pension plans. 457 is something that you can do in addition too what you have now. However, it's probably thru a state system that manages the pensions. If it's NJ, I wouldn't do it. The pension system is nearly bankrupt in NJ and putting money into a 457 is putting money into a nearly bankrupt ponzi scam. Make sure the 457 you have doesn't look like the State of NJ Pension (and 457) system. You want to make sure you diversify your portfolio.

[anonymous_saver]

Not from, NJ. But the pension is required part of my position. In a year or so I will probably get a different job at the University and then I will no longer be in the union. However, my employer will require me to put in 2.5% of my income into a 401(a) while they contribute 13%!!! Now that will be a great deal.

There is a lot of diversity options for me, there are over 250 investment options, I choose only ones that are Vanguard Index funds.

Thanks for your comment though!

[b4freedom]

Originally Posted by anonymous_saver

Not from, NJ. But the pension is required part of my position. In a year or so I will probably get a different job at the University and then I will no longer be in the union. However, my employer will require me to put in 2.5% of my income into a 401(a) while they contribute 13%!!! Now that will be a great deal.

There is a lot of diversity options for me, there are over 250 investment options, I choose only ones that are Vanguard Index funds.

Thanks for your comment though!

I want to work where you work!

I work for a college. I'm in the union. I couldn't get in the pension system as its going away ( many are grandfathered in). I get a 403b, I contribute 5%, they contribute 8%. 35 hour work week. Great health benifits (although we'll see what they do this year). Problem is that the pay isn't as great as private sector. If I went private sector, I'd make 30k more, but have to work 30+ hours more a week (industry standard). I don't think that's worth it. Although, 30k more would be nice. I'd rather spend be able to come home at 4:30 and spend a long evening with my kids. I get 22 vacation days and 15 sick days.

[anonymous_saver]

Originally Posted by b4freedom

I want to work where you work!

I work for a college. I'm in the union. I couldn't get in the pension system as its going away ( many are grandfathered in). I get a 403b, I contribute 5%, they contribute 8%. 35 hour work week. Great health benifits (although we'll see what they do this year). Problem is that the pay isn't as great as private sector. If I went private sector, I'd make 30k more, but have to work 30+ hours more a week (industry standard). I don't think that's worth it. Although, 30k more would be nice. I'd rather spend be able to come home at 4:30 and spend a long evening with my kids. I get 22 vacation days and 15 sick days.

Working at colleges/universities are kind of hidden gems it sounds like! To be honest, I really don't think I would ever work anywhere else (I may change departments, but I don't think I could turn down the benefits). I start off with 11 holidays, 13 days sick leave, and 13 days vacation. However, the days off greatly increases with time. If I were to stay in the union by the time I retire I would be getting like 28 days of vacation a year and 13 days of sick time in addition to the holidays. I'm never leaving this place! They also pay 100% for tuition. I already have my M.A., but I've started to take a class here and there b/c I hate the thought of turning down free stuff. Yes, they pay less than private sectors, but they definitely make up for it through the benefits in my opinion!