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Why Are 403b's More Popular Than 457's When Both Are Offered?

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I think I'm going crazy, I can't get my head around this. I am an advisor in Michigan, but am not a "preferred provider" to any school districts, although I do have several teachers as clients. If both a 403b and 457 are offered within a district, and you aren't looking to max fund either one, what are the general pro's and con's to going with one over the other? I see the issues with the governing body holding the funds in a 457, but they can be withdrawn before 59 1/2 without penalty. I believe I've caught that contributions to a 457 can't be taken out for 5 years? Any help opinions or facts would be appreciated.

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Usually, 403bs have a very large list of companies on the approved vendor list.

 

That translates into advisors from each of those companies pushing their products at the prospective 403b market.

 

On the other hand, you will often see a single 457 company servicing a school district. (Much smaller interested sales force)

 

It's a numbers game. The 457 may be a better plan for many individuals, but most employees don't even know it exists! You think that agent sitting in the lunch room is going to risk losing his/her business to that dreaded 457 plan?

 

Another problem is because people prefer to stick with familiarity, they will avoid investing within a 457 plan - simply because they haven't heard of it. "I've never heard of this 457 thing. Susie uses a 403b plan and that's what she said I should do.. so I'm going to stick with the 403."

 

_____

 

Getting to your question about Pros & Cons.

 

If you are planning on working past 59.5, the 403 will be more flexible for you.

 

If you are younger, the chances of you staying employed by the same district until the age of 60 is very slim. Thus, 457 is more flexible in this case - the minute you quit, you can have penalty free access to your money.

 

Roth contributions are only available in the 403, not the 457.

 

 

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