Author Topic: Moving investments in a 403(b) plan  (Read 1064 times)

elaine amj

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Moving investments in a 403(b) plan
« on: October 04, 2017, 06:53:32 PM »
My husband has a 403(b) plan with $62k through Transamerica administered by his old employer. On top of that he has a separate set of investments in an Employer Contribution Account (not sure why this is separate) with $23k. He hasn't worked there in a few years and we do not make any contributions to this account. I am very much a newbie at looking into these investments so would really, really appreciate some handholding as I would like to consolidate to 1-2 Vanguard funds.

This is only about 10% of our retirement accounts so for simplicity's sake, I am thinking of just putting everything into VTSAX or a combo of 80% VTSAX and 20% VBTLX (all these acronyms make me feel smart!). We are looking at FIRE in 1-4 years although it's probable we won't need to touch this money for 5 years, probably more.

Anyway, I finally called and spoke to the advisor. He said we can basically only choose to reallocate the money between the 15 or so funds they offer (currently, the investments are spread out between all 15 accounts with MERs mostly around 0.5% to 0.6%). The only low MERs they offer are:
Vanguard Federal Money Market Inv (0.11%)
Vanguard Institutional Index Instl Pl (0.02%)
Vanguard Small Cap Index InstlPlus (0.04%)

We suffer from a bit of inertia so I would prefer to leave the money here with Transamerica. BUT they don't offer the funds everyone keeps talking about and doesn't look like there is anything comparable.

Anyway, my "dumb" questions are:
- how do we move this money? Do I just set up an account somewhere and then put in a request for an in-kind transfer and then sell off everything and buy what I want? We already have an account with TD Ameritrade so lazy me would just like to stick with that (They offer VTI which I *think* is essentially the same as VTSAX and BND which I think is like VBTLX)

- what do I need to know about moving a 403(b)? I pretty much understand nothing about what 403(b)s are even! I think they are similar to 401ks. We pretty much let his employer do whatever and only look at this account to get the balances.

- anything else I should consider from a tax perspective?

Full disclosure: We live in Canada. My husband does file US taxes every year but because he makes under the cutoff, we don't pay any US taxes at this point. Other than this and one more old employer retirement account (which offers a defined benefit pension so we are not planning to touch it until he hits normal retirement age) we have no US investments and for simplicity's sake, I prefer to keep it this way. I don't mind leaving these investments in the US as we spend $6-10k in the US annually and it will be nice in the future not to have to change money. The rest of our savings are in Canada as I am much more familiar with Canadian investing (although I don't know a whole lot there either). My main goal is simplification and getting better returns. I also want a "set it and forget it" method. If it matters, my husband is 47.

These all feel like dumb questions, but I really don't know where to start. Help!
« Last Edit: October 04, 2017, 06:56:47 PM by elaine amj »

MDM

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Re: Moving investments in a 403(b) plan
« Reply #1 on: October 04, 2017, 08:38:29 PM »
...I am thinking of just putting everything into VTSAX....

The only low MERs they offer are:
...
Vanguard Institutional Index Instl Pl (0.02%)
Vanguard Small Cap Index InstlPlus (0.04%)

We suffer from a bit of inertia so I would prefer to leave the money here with Transamerica.
In that case, 82% of the first and 18% of the second will pretty much get you what you want.  See Approximating total stock market - Bogleheads for details.

elaine amj

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Re: Moving investments in a 403(b) plan
« Reply #2 on: October 04, 2017, 09:05:05 PM »
...I am thinking of just putting everything into VTSAX....

The only low MERs they offer are:
...
Vanguard Institutional Index Instl Pl (0.02%)
Vanguard Small Cap Index InstlPlus (0.04%)

We suffer from a bit of inertia so I would prefer to leave the money here with Transamerica.
In that case, 82% of the first and 18% of the second will pretty much get you what you want.  See Approximating total stock market - Bogleheads for details.
Really?? You just made my day!! This would mean all I have to do is click a few boxes to change the asset allocation (zeroing out all those other funds) and I should get what I want!




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elaine amj

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Re: Moving investments in a 403(b) plan
« Reply #3 on: October 04, 2017, 09:12:16 PM »

Writing out this post also really helped me solidify my questions and put into words what I am trying to do. Which in turn helped me Google for answers a little bit better (before I didn't even know where to start searching).

So to answer my own questions...

1. Looks like I don't even need to move from Transamerica! I can just switch to the asset allocation above and stay put :)

2. BUT, given that we could possibly want access to some of this money in 5-10 years (DH is now 47), it is likely worth rolling over some of it into a Roth IRA.

3. I started looking at tax implications for a US citizen living in Canada (I confess my head spun a little) and looks like I should be able to safely convert at least a small amount every year. Can probably get away with at least $10k/yr tax free.

Will have to consider if it is worth going through this hassle every year for the next few years or else forget it and plan not to see this money until 60.

Anything else I should consider?

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elaine amj

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Re: Moving investments in a 403(b) plan
« Reply #4 on: October 04, 2017, 09:45:19 PM »
Using this post to add my research notes...

- as a US citizen living in Canada, there are two ways to reduce US taxes
1) Foreign Earned Income Exclusion which allows expats to earn about $100k tax free.
2) Foreign Tax Credits, which gives us a dollar tax credit for every dollar of tax we've paid in Canada. Even better, the tax credits carry over.

- I need to know how much we can rollover to a Roth IRA tax free.

So it looks like it may be worth consulting with our accountant who does our taxes. Need to find out:
A) which method she has been using (maybe the Foreign Tax Credit?)
B) do we have any tax credits that carried over and if so, how much?
I will look at our tax return for last year and see if I can decipher this.

- this year might be a good year to rollover a portion of the $80k account into a Roth IRA. DH is currently on long term disability paid out by his work health insurance. This means his income is only $51k this year, much lower than normal (although his paycheck is much the same since there are no deductions coming off it).

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MDM

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Re: Moving investments in a 403(b) plan
« Reply #5 on: October 04, 2017, 10:06:31 PM »
...it is likely worth rolling over some of it into a Roth IRA.
...
Anything else I should consider?
Traditional vs. Roth, or when to do Roth conversions - both come down to your marginal tax rate now vs. your marginal tax rate later.  In other words, for your situation, do the traditional->Roth conversion in the year(s) your marginal rate(s) is/are lowest.

Heroes821

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Re: Moving investments in a 403(b) plan
« Reply #6 on: October 05, 2017, 07:23:03 AM »
I know this doesn't apply to everyone, but I found it much easier to handle these types of accounts like this.  Plan my Asset Allocation first, then take something like VTSAX or a S&P500 equivalent basically a broad US index fund and only worry about that single fund in places that have limited options.  Then use my IRAs or Taxable accounts at Vanguard to keep my portfolio balanced how I want.   

elaine amj

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Re: Moving investments in a 403(b) plan
« Reply #7 on: October 05, 2017, 01:08:46 PM »
@Heroes821 That does make sense.

I'm sticking with MDM's suggestion of an approximation of VTSAX. And we'll set up a Roth IRA somewhere (prob Vanguard?) and start rolling some money over.

How much to rollover is a big question since DH's income is a bit of a question mark (since he is collecting disability AND we live in Canada). I know $10k would be safe but rolling more over would be speed the process up. Going to investigate further to figure out how much Foreign Tax Credits he has that carried over. Complicated stuff but at least I know the questions to ask now! :)

elaine amj

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Re: Moving investments in a 403(b) plan
« Reply #8 on: October 05, 2017, 01:31:25 PM »
Just wanted to share....I DID IT! After all these stupid years of inertia, it turned out to be ridiculously simple.

I have rebalanced our portfolio to approximate VTSAX. Best of all, my MERs will now drop drastically from an average of 0.5++% to:
Vanguard Institutional Index Instl Pl (0.02%) - 82%
Vanguard Small Cap Index InstlPlus (0.04%) - 18%

WOOOTTT!!!! Thank you Mustachians!!

MDM

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Re: Moving investments in a 403(b) plan
« Reply #9 on: October 05, 2017, 01:33:42 PM »
Well done - congratulations!