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Stoffel

Non-qualified? 457(b) Vs 403(b)

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We're offered both a 403(b) and 457(b) with exactly the same investment options. I don't know which to fund first. The only difference seems to be that there's no penalty for early withdrawal from the 457, but the 457 is a "non-qualified" retirement plan. What does this mean?

 

I thought it meant that it can't be rolled into a qualified retirement account (e.g. IRA), but the latest literature says that it can be. Or is that only when there's a "qualifying event"? Can someone explain this qualified/non-qualified stuff?

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Guest Guest_Joel F

403(b) and 457(b) are both non-qualified arrangements. Qualified plans may be found under section 401(a) of the Code. This section includes Defined Contribution and Defined Benefit plans offered by public and private employers. 401(k) plans for example is an example of a qualifed plan.

 

Peace,

Joel

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Joel is right, most people lump 403(b)'s into the qualified plan arena - but technically they are not - though they are subject to the same 415 limit as a 401(k) and have many similarirties.

 

To answer your question - if both plans are the same in terms of fees and investment options, I would consider the 403(b) first as it will give you more flexibility. The 457 does allow you to take distributions if you separate from service before 59 1/2 without penalty, so you will have to weigh that feature. The other option is to contribute to both.

 

ScottyD

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I am still confused on the 403b vs 457 issue. We now how the ability to contribute to a 457 and a 403b. which one should I maximize first? if 403b is more flexible, how? Doesn't 457 make more sense if it has the same investment options, seems to provide institutionally priced product and no 10% penalty for early withdrawal. The 457 provider also provides loans, although I thought IRS hasn't ruled on this yet. Thanks for any replies.

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Guest Guest_Joel F

While the 457 is exempt from the 10 percent tax---it is somewhat more difficult to gain access to your money prior to retirement/severance from employment. "Small Account Withdrawals" and "Unforseeable Emergency Withdrawals" may be made subject to the terms of the Plan. Contact your Plan Administrator for details.

 

On the other hand it is easier to make a 'hardship' withdrawal under 403(b)---but the withdrawal is subject to the 10 percent tax. IS THIS A GREAT NATION OR WHAT!!

 

Peace and hope,

Joel

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Well, now that we've veered off the cliff into flame territory, I thought I'd give an update.

 

We finally decided to go with the 457. It seemed like the two plans were exactly the same, so the slight advantage of no early withdrawal penalty cinched it. Both can be rolled into an IRA upon retirement, so it didn't seem like it mattered that much.

 

Thanks all for the input.

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