401k or 457b

Investing
#1

Going over benefits and job is offering both a 401k and a 457b plan. It is a government job, and they contribute 4% of my salary to my 401k and nothing for 457b. Before getting this info, I originally planned to contribute up to the match to my 401k but learned that they still contribute that % even if I don’t. I also started reading about the 457b and where you could withdraw without penalty if I were to retire early. I think I’m able to have both so should I or just choose only one? If only one, which should I choose?

I have already started my Roth IRA and another taxable brokerage as well. HSA is also available too.

#2

Are you planning to retire early? A friend of mine had access to and is withdrawing from his 457 while traveling and retiring early.

Withdrawing from the 457 and other liquid assets, like cash and/or a taxable account, generally gives early retirees time to make Roth conversions, which can be drawn tax free after 5 years.

This definitely is a more advanced and unique withdrawal strategy that I’m less familiar so I am nowhere near an expert.

As far as the HSA goes I know another friend who maxed hers for years and had over six figures in her HSA helping with her withdrawal strategy as well in early retirement.

The 401k can be converter on withdrawal or lower earned incomes years so I would suggest not prioritizing that account until others are maxed or well funded.

If I were in your place and thinking of early retirement, if the 457 had good options I would go the order of 457 > HSA > Roth (if income allows) then 401k.

#3

Thanks! Yeah, that’s the goal, retire before 59 1/2 yo.

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#4

Keep in mind that if you pull funds from an HSA before the age of 65 other than for qualified medical expenses, you’ll have to pay a penalty as well as the taxes due.

Another thing about HSAs that often times gets overlooked is that it doesn’t have a very favorable after death distribution scenario, unless you’re married and then it transfers directly to your spouse.

#5

Both! You can max out both for a total 41k pretax savings in 2022.

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#6

Don,

You can reimburse yourself at any time from the HSA, tax free if you pay out of pocket for qualified expenses and keep good records.

Delaying HSA Distributions

Since there is no rule stating that you must use your HSA to directly pay for medical expenses or that you must withdraw money from your HSA within a certain amount of time after paying for a medical expense, you can just take out the money whenever you want.

As long as the qualified medical expense occurred after the HSA was opened, you can withdraw money from the HSA at any time after incurring the expense to reimburse yourself.