Pension, 403b, 457, & 401a? New Job Choices

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Star*Bucks
Posts: 288
Joined: Wed Mar 05, 2014 10:27 am
Location: California

Pension, 403b, 457, & 401a? New Job Choices

Post by Star*Bucks »

Hello I just got a State of California job and I am trying to figure things out with the retirement options. I haven’t had a chance to speak with a rep yet but I was hoping someone here who maybe familiar with this could help.

So there are 2 Pension options. A traditional State pension but you can select a “Savers Choice” plan which is not a traditional pension it’s a plan both the state and I deposit money into and I make the investment choices (just like a 401k). Now I have to select one of the two which I am more inclined to select the Savers Choice because I doubt I will be here too long.

Now they also offer a optional 403b & 457. All the documentation I’ve read states I can max both the 403b & 457 which is great! My question is does the IRS not count the Savers Choice against annual limits? There is also a 401a which seems to be a Roth option which I’m not interested in. I’m looking to put everything I can into retirement accounts plus all benefits I elect to take (medical, dental, vision, etc) will have premiums taken pre tax. So I’m very excited for this opportunity.

Most of the money I earn will go to retirement accounts and I hope to pay zero taxes from this job. That’s why I will keep the job I have been at so I can actually have a paycheck deposited i to my account. So again can I contribute to the savers choice while also maxing out the 403b & 457? Also the High Deductible Health Plan is what I will choose and I plan to max the HSA that is offered. So Happy!!!

Gilberto de Piento
Posts: 1942
Joined: Tue Nov 12, 2013 10:23 pm

Re: Pension, 403b, 457, & 401a? New Job Choices

Post by Gilberto de Piento »

My experience is that 457 and pension limits are unrelated but I am not in California. Your rep should know all the details. Mine was very helpful. Financial advisors and bankers aren't always familiar with the 457 and 403 so beware of their recommendations.

Western Red Cedar
Posts: 1205
Joined: Tue Sep 01, 2020 2:15 pm

Re: Pension, 403b, 457, & 401a? New Job Choices

Post by Western Red Cedar »

Star*Bucks wrote:
Mon Jan 17, 2022 10:39 am
Most of the money I earn will go to retirement accounts and I hope to pay zero taxes from this job. That’s why I will keep the job I have been at so I can actually have a paycheck deposited i to my account. So again can I contribute to the savers choice while also maxing out the 403b & 457? Also the High Deductible Health Plan is what I will choose and I plan to max the HSA that is offered. So Happy!!!
I'm not in California, so I second the recommendation to talk to someone from HR or payroll for details. They'll likely include that on one of your first days as part of the onboarding process. You'll probably have a month to decide which account you want.

Based on what you've laid out I would be surprised if you could contribute to all three of those accounts, but it could be possible and someone in HR should tell you right away. @GDP is correct though that pensions often are unrelated to other tax deferred accounts in the public sector. In my system I have access to the equivalent of the saver's choice option, or a more traditional defined benefit pension. We also have access to a 457b.

The 457b is a particularly powerful tool for ERE spending levels. You can currently access that money any time after leaving your employer without penalty. That provides a nice cushion to either do Roth IRA conversions or simply pull money out tax free as long as your withdrawals are under the standard deduction and you don't have a lot of other income sources.

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GandK
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Re: Pension, 403b, 457, & 401a? New Job Choices

Post by GandK »

I did some Googling on your situation. At first blush it looks like Savers Choice is the way to go.

Assuming your percentages are the same as the UC percentages, in either choice (SC or Pension Choice) the state puts in 8% of pay, and you put in up to 7% of pay, on up to $290k. Comparing just those two, and assuming equal contributions, I'd much rather choose my own investments in a pseudo-401k than have California choose them in a pension based on what's best for the state government and the investor pool (in that order).

A 457 (deferred comp) is a weird beast. My husband had one. Unlike all your other options, 457s do not fall under ERISA. Because of this, you can take money out of them before age 59.5 without the IRS penalty AS LONG AS they are still classified as a 457 at that time... you can't roll them to an IRA and then do that. Also because they don't fall under ERISA, you can do a 457 and a 401k at the same time, as you alluded. And they have huge "catch-up" contribution amounts once you hit 50... $30k or so annually last I saw. That said, my husband's 457 investment options (fund choices) were almost nonexistent. It ended up being a glorified savings account. Also they don't have ERISAs legal protections. I wouldn't personally choose this option if a 401k was available, unless I had maxed out the 401k first and still needed to explicitly shelter more of my savings.

401ks and 403bs are very similar. The former has more investment classes available, the latter gives higher catch-up contribution amounts to old people. If you don't intend to stay there into your 50s, the 401k wins.

WFJ
Posts: 416
Joined: Sat Apr 24, 2021 11:32 am

Re: Pension, 403b, 457, & 401a? New Job Choices

Post by WFJ »

You can stack the benefits.

https://www.irs.gov/retirement-plans/ho ... ement-plan

Elective deferral limit
The amount you can defer (including pre-tax and Roth contributions) to all your plans (not including 457(b) plans) is $20,500 in 2022 ($19,500 in 2020 and in 2021; $19,000 in 2019). Although a plan's terms may place lower limits on contributions, the total amount allowed under the tax law doesn’t depend on how many plans you belong to or who sponsors those plans.

Star*Bucks
Posts: 288
Joined: Wed Mar 05, 2014 10:27 am
Location: California

Re: Pension, 403b, 457, & 401a? New Job Choices

Post by Star*Bucks »

Alright so I joined the benefits zoom call today and I have a much clearer picture. I will still have a phone call with a benefits rep before making my elections but I thought I’d share what I found since all this was very confusing for me.

403b - Max Contribution of $20,500 this year
457b - Max Contribution of $20,500 this year

There are two different pension plans you can select the traditional pension which takes 5 years to vest but guarantees lifetime payments. There is also a “Savers Choice” very similar to a 401k. These both force you to put in 7% of pay and they will put in 8%. There is a Third Tier here which is called the DCP aka Backdoor Roth. Combined with the pension option you select you can put in 61k max annually which does not go against the 403b or 457 maximums. The rep told me I could put in over 100k per year if I maxed everything out. I asked if I could deposit money into the Backdoor Roth via check or transfer but she said it can only be done via payroll deductions.

Since I don’t make that much money here I plan to do the following:

401k - Max out the 401k at my other job which should be maxed out by the end of February. My employer will probably give me 5k in employer contributions by year end.

457 - Max out the 457 at the State job no matching of any kind

HSA - Max out the HSA at the State job

Backdoor Roth - Push the remaining payroll I get to the Backdoor Roth via payroll deductions.

401k $20,500 + $5,000 Employer Match
457b $20,500
HSA. $3,100 + $500 Employer Contribution
DCA $30,000 to $40,000

This is going to be the best year I’ve ever had in regards to saving for retirement. Also all the medical dental vision premiums that I have taken out of my check are taken pre tax. I wish I got a state job a LONG time ago!

Star*Bucks
Posts: 288
Joined: Wed Mar 05, 2014 10:27 am
Location: California

Re: Pension, 403b, 457, & 401a? New Job Choices

Post by Star*Bucks »

Forgot to mention I will check to see if I can still contribute to a IRA as well

WFJ
Posts: 416
Joined: Sat Apr 24, 2021 11:32 am

Re: Pension, 403b, 457, & 401a? New Job Choices

Post by WFJ »

Star*Bucks wrote:
Wed Jan 26, 2022 6:10 pm
Forgot to mention I will check to see if I can still contribute to a IRA as well
You can. When I've worked for states, I slowly learned over the years how much income could be deferred and now have the "problem" of having too much in my traditional IRA accounts (mostly due to a ridiculous match in one state of over 15%). I'd consider doing all ROTH in your personal accounts. If you found someone in HR who understands what you are doing, save their card/name as I've never found one. Also frontload the contributions as much as you can afford. I try to get a 0$ or near zero paycheck until all retirement accounts are maxed.

457 are awesome for FIRE as one can take out cash before 72 or 55 without penalty. The only thing to watch out for in state retirement plans are mutual fund fees and provider fees. Had one provider charge 70 bps/year to mail documents on top of mutual fund fees and a few years ago had a plan that charged a higher percentage on larger accounts than small accounts, apparently it was more expensive to mail large account balances compared to mall account balances? Accounts over 64k were paying 50 bps while those under 10k were paying 10 bps, above low mutual fund fees. This was eventually changed but was costing a lot of money in fees for a few years. When I left, they were charging all accounts a fixed rate of $1.50 per month regardless of balance. I've seen fees as high as 3%, which makes it impossible to grow AUM.

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