Is a 457 a better way to save for retirement than a 403(b)?

March 9, 2009 10:11 AM

Is a 457 plan a better way to save for retirement than a 403(b) plan?

I work for a state government, and have the option of a 457 or a 403(b) for retirement savings. I'm already contributing the maximum amount that my employer will match into the 403(b). I wanted to add some more and found that I also have the option of a 457. It seems like the 457 is similar to the 457, except that after I change employers I can withdraw the money at any time with no penalty, paying my normal marginal tax rate for that year. This seems like it is a much better option.

The only downside seems to be the limited number of funds I can invest in compared to what's available in the 403(b). Is there something I misunderstand?

posted by grouse to Work & Money (3 answers total)

If there is no match on the 457, a Roth is probably the next thing you want to fund.

The 457 does offer better flexibility than a 403(b), but a poor selection of investment vehicles is a significant drawback.

I'd prioritize the best options as:

1) 403(b) up to max matching

2) Roth IRA up to max

3) 457 (assuming reasonable investment options)
posted by Lame_username at 10:32 AM on March 9, 2009

Also look into the earliest age you can access the funds. IIRC, the 457 makes you wait until you are older to start taking payments. So if you don't start when you leave this job, you may have to wait until you are much older.
posted by Lame_username at 10:42 AM on March 9, 2009

Thanks for the good advice, Lame_username. I think it used to be that you had 60 days to decide how to make distributions in any plan. Now some plans can allow you to make the choice at any time, such as my employer's plan.

The limited investment options might not be so horrible, they still have some basic index funds and the fees are low for those (0.1351% expense rate for their Wilshire 5000 stock market index fund versus 0.15% for Vanguard's).
posted by grouse at 11:30 AM on March 9, 2009