The Mighty 457B

To be frank, I don’t expect this post to apply to 99% of readers, but it’s on my mind and maybe one day someone finds it helpful.

At the time I started my first job, like every other company in big tech, I was enrolled in a 401K plan. It was a typical 401K plan with a normal company match, mutual fund options, roth/traditional options, etc. I was simultaneously still working as a TA for Georgia Tech (my alma mater).

Prior to graduating my title was Teaching Assistant (TA), and once I gradated my title changed to Instructional Associate (IA). The title change came with a slew of interesting benefits.

As an IA you are allowed to enroll in a 403B and/or 457B. A 403B is essentially a 401K designed for nonprofits and government employees (I was an employee for the State of Georgia). Moreover, you cannot contribute to both a 401K and 403B at the same time.

The 457B is also like a 401K, but falls under a different tax code from 401K, so you can actually contribute to both plans. There are two main characteristics of 457B plans: contributions are pre-tax and if an employee resigns/retires, there is no 10% withdrawal penalty (unlike 401K or 403B).

I immediately started contributing 100% of my paychecks to the 457B. The IA money was great, but I didn’t need the assets beyond my 9–5 earnings, and reducing my tax bill was more important. I also knew I wasn’t going to work as an IA forever, so I could withdraw the funds “whenever.”

When you withdraw funds from a 457B you are responsible for paying income tax, so its imperative the withdrawal is strategically planned. I left my software job end of 2021 and going into 2022 I was staring at no income.

While earning, I didn’t pay income tax because the contributions were pre-tax and at the time of withdrawal I paid minimal tax because my income was close to 0. I didn’t plan for things to work out so smoothly, but I’m grateful for fully maxing out my 457B plan.

P.S. This is not financial advice and I am not your financial advisor.