retirement savings question - 403(b) vs. 457?

[illinicheme]

DH and I need have reached the milestone where our MAGI is now above the limit for Roth IRA contributions, so it's time to do some readjusting. We have several options and I'm looking for opinions, particularly with regard to 403(b) vs. 457 accounts.

Ages: 32/34
Current retirement account balances:
401(k)s two old, one active) = ~$147k
Roth IRA #1 = ~$46k
non-deductible traditional IRA #1 (to be converted to the Roth in 2011) = ~$5800
Roth IRA #2 = ~$35,000
non-deductible traditional IRA #2 (to be converted to the Roth in 2011) = ~$9000
old 403(b) = ~$15,000
TOTAL = ~$258k

CalPERS pension = ?? (not sure what it's at - DH has been contributing his portion for ~1.5 years)

We need someplace to park the $833/month we were putting into Roth IRA accounts. (Could also potentially bump up the amount, but we're looking to get into taxable investing as well.)

Options:

1) Keep contributing $833/month to non-deductible traditional IRAs and convert to Roth IRAs each year.

2) Do additional pre-tax investing via DH's job. He apparently has a 403(b) or 457 option available in addition to his mandatory pension contribution. I'm not sure how to decide between the two account types.

3) Mixture of 1 and 2. Keep contributing/converting for my backdoor Roth IRA and also contribute as lesser amount to DH's potential 403(b)/457.

4) Scrounge up more money, because it looks like we'll probably be ~$8k above the MAGI limit for 2011, so if we follow plan #2, we could potentially requalify for a direct Roth contribution.

It's a good problem to have, but I'm at a bit of a loss. This is the first time since I started my Roth IRA in 1998 that I've got retirement savings decisions to make beyond "max 401(k)....max Roth IRA." Thoughts?

[Deleted]

Is your DH a government or a public university employee? The plans differ so you really need to look at his employment information. One of the best features of a government employee 457 is that you have access to the money once you separate from service without the 10% penalty that you would have with a 401k or IRA if you need to access the money earlier. So, for example, we'll be using mine as a bridge for our early retirement until DH can start collecting from his 401k.

With respect to the Calpers pension, again you should review your DH's employment packet. If he's a local government employee they will have a formula. A common local government contract is 2% at 55 which means you multiply your last wage amount x years of service. So for example I had 8 years of service so my pension is 16% of my last year's pay. Calpers has an excellent website at www.Calpers.gov. Also they do some quarterly financial planning classes for free. I highly recommend you sign up. A lot of it is basic but we found it really helpful to understand not only the benefits but to take some mandatory "couples time" to discuss financial planning. We made it fun (if not a little expensive!) by taking a class in Sacramento (we were living on the SF peninsula at the time) and spent the weekend in old Sac and overnighted on one of the old paddle-boats. Calpers.gov will have a list of when and where the classes will be held (they rotate throughout the state).

Hope you find this info helpful.

[Deleted]

If you deposit some in the 404b/457, would it knock you down below the MAGI so you can continue depositing into the Roth IRAs?

[Deleted]

I'd also add to the 403b/457 question that you should look at the type of investments that are offered by each. The 403b's that our system provides access to are all annuity funds. Those have high costs--loads, expenses, and surrender charges.

The 457 is sponsored by the state retirement system. They charge nothing, but these are invested exactly as the state pension fund is. It's actually called the RSA-1 option. You do get to choose the percent that you divide between the fixed and stock option, but you can only change it once a year.

I went with the RSA-1. As another poster said, if I lose employment, I have access to the $$$ without penalty although it would be taxed. That was important to me as were the costs associated with it.