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Learning, Sharing, and Teaching => Investor Alley => Topic started by: Broadway2019 on July 18, 2017, 09:30:23 AM

Title: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 09:30:23 AM
Hi Everyone,

I am trying to help my fiance setup a 403 b. She already has a pension with the city school system and can contribute to a 403 b, however, there is not match. I do not know much and need advice on which company to go with. We are only 29 and 32 so want something with more risk but low fees. Anyone know of any of these companies? I am leaning towards American Century Team because they seem to have low fees, however, am not sure. Right now I always had Fidelity or Vanguard as an option.

American Century Team
AXA Advisors, LLC (PenServ Plan)
Lincoln Financial Advisors
Lincoln Investment
MetLife
New York Life
Plan Member Services
VALIC Financial Advisors, Inc.
VOYA Financial Advisors, Inc.
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 09:49:50 AM
There are two primary considerations: management costs and fund selection. I can't tell you which one is best unless you list the management fees for each (ideally should be $0/0%) and whether they have low cost index funds available (e.g. ~0.05% expense ratio Vanguard/Fidelity funds).

My wife has VALIC and VOYA as options for her retirement plan. We went with VALIC which charges a 0.50% management fee. VOYA was a little worse, if I recall. The fees they charge for your specific 403b may be different.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 09:55:12 AM
I will have to take a look. Not sure how much Valic charges howver, attached is what some rep sent this morning.
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 10:24:11 AM
All of those funds are terrible and I'd rather invest in a taxable brokerage account at Vanguard than pay their ridiculous fees. The American Funds are particularly bad with a 5.75% front load!

Those all seem to just be for specific funds. A lot of management companies charge an additional fee regardless of fund selection. Do you have any paperwork about that?
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 10:29:26 AM
I am trying to get that information now and will report back. If I don't participate in the 403 b at work, there is no other way to do pre-tax right?

Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 10:31:04 AM
I am trying to get that information now and will report back. If I don't participate in the 403 b at work, there is no other way to do pre-tax right?

You may be able to do a Traditional IRA for pre-tax.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 10:32:35 AM
How would that work w/ my employer? I would love to just use Vanguard
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 10:35:59 AM
How would that work w/ my employer? I would love to just use Vanguard

Your employer is not involved at all. You just open the IRA directly with Vanguard. You only need to qualify based on tax code. You can open one IRA per person.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 10:38:59 AM
Would I only be able to contribute $5500 or can I contribute $18000? How is it pretax or would this only be after tax?
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 10:42:09 AM
For a Traditional IRA you contribute post-tax dollars but then deduct it when you file your taxes, making it effectively the same as a pre-tax 401k/403b. You can contribute up to $5500 depending on your income and such. Also, I should mention that you can typically contribute to both an IRA and a 401k/403b, but you may need to resort to just an IRA if the management company selection is too terrible.

More info from irs.gov:
https://www.irs.gov/retirement-plans/traditional-iras
https://www.irs.gov/retirement-plans/ira-deduction-limits
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 10:43:27 AM
For a Traditional IRA you contribute post-tax dollars but then deduct it when you file your taxes, making it effectively the same as a pre-tax 401k/403b. You can contribute up to $5500 depending on your income and such. Also, I should mention that you can typically contribute to both an IRA and a 401k/403b, but you may need to resort to just an IRA if the management company selection is too terrible.

More info from irs.gov:
https://www.irs.gov/retirement-plans/traditional-iras
https://www.irs.gov/retirement-plans/ira-deduction-limits

Thanks! I will definitely do this and then see what other employer choices are. I am going to call each and get their plans information today.  Also, I make $125k and my fiance makes $90k so not sure if this will work but will check the income limits
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 11:01:05 AM
All of those funds are terrible and I'd rather invest in a taxable brokerage account at Vanguard than pay their ridiculous fees. The American Funds are particularly bad with a 5.75% front load!

Those all seem to just be for specific funds. A lot of management companies charge an additional fee regardless of fund selection. Do you have any paperwork about that?

Also, how did you figure out the 5.75% front load fee? I was comparing on expense ratio.
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 11:07:55 AM
All of those funds are terrible and I'd rather invest in a taxable brokerage account at Vanguard than pay their ridiculous fees. The American Funds are particularly bad with a 5.75% front load!

Those all seem to just be for specific funds. A lot of management companies charge an additional fee regardless of fund selection. Do you have any paperwork about that?

Also, how did you figure out the 5.75% front load fee? I was comparing on expense ratio.

I put the fund ticker symbols (e.g. ABALX) into Google and it mentioned the front load. Morningstar.com also lists the front load. It is possible that the front load is waived for your 403b plan, but you would want to be absolutely sure before investing. In addition, expense ratios above 0.50% are still not very good (though could still be worth taking advantage of the pre-tax space depending on your tax bracket and other factors).

The longer your fiancee plans to stay at this job the worse a high expense ratio will be. If it only lasts for a few years then you can just roll it over into an IRA when she leaves and the expense ratio compounding will not have amounted to much (though front loads will).
Title: Re: 403b Investment Options....HELP!
Post by: MDM on July 18, 2017, 11:22:20 AM
Regarding some terminology, the chart below may be helpful:
(http://s13.postimg.org/otdvnya47/screenshot_130.png)

Yes, the fees displayed are outrageous, but unfortunately not atypical of 403b plans.  See To 401k or not to 401k? That is the question (https://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/) - the same math applies to 403b plans.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 11:26:18 AM
Regarding some terminology, the chart below may be helpful:
(http://s13.postimg.org/otdvnya47/screenshot_130.png)

Yes, the fees displayed are outrageous, but unfortunately not atypical of 403b plans.  See To 401k or not to 401k? That is the question (https://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/) - the same math applies to 403b plans.

Thanks MDM! I just got off the phone with my fiance and told her to call Lincoln Investments and Plan Member Services to ask about their management fees, if they have vanguard or fidelity funds, and if so what are load fees and expense ratios.

I am hoping this will clear some things up. I think since we cannot do an IRA that is tax deductible we will try to do the 403b if the fees seem reasonable. Does anyone know what a reasonable management fee is?
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 11:35:49 AM
I was thinking....Could I invest $18k pre-tax and then roll over every year to an IRA at Vanguard.
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 11:50:35 AM
Does anyone know what a reasonable management fee is?

It depends on how long you stay in the fund, your current tax bracket, and your retirement (withdrawal) tax bracket. You're probably fine with anything under a 1% expense ratio, but without knowing specific numbers (some of which you have to guess on) you can't say for sure.


I was thinking....Could I invest $18k pre-tax and then roll over every year to an IRA at Vanguard.

This would be ideal. Some plans may allow you to do this, but it will depend on your specific 403b.
Title: Re: 403b Investment Options....HELP!
Post by: Debts_of_Despair on July 18, 2017, 12:04:09 PM
The fees and available funds for 403bs are notoriously bad.
  For some reason the 403b brokers are always pushing annuities.  I am able to get a Vanguard target date fund though by wife's 403b broker but I have to pay them 1% of asset value to "manage" it which is complete BS.  It makes me sick to think about. 
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 12:13:09 PM
The fees and available funds for 403bs are notoriously bad.
  For some reason the 403b brokers are always pushing annuities.  I am able to get a Vanguard target date fund though by wife's 403b broker but I have to pay them 1% of asset value to "manage" it which is complete BS.  It makes me sick to think about.

Yea I am wondering if 1-1.5% is still worth it. I am assuming it is since it is still pre-tax.
Title: Re: 403b Investment Options....HELP!
Post by: MDM on July 18, 2017, 12:14:03 PM
Yea I am wondering if 1-1.5% is still worth it. I am assuming it is since it is still pre-tax.
What does the math in the 401k thread suggest to you?
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 12:30:06 PM
Yea I am wondering if 1-1.5% is still worth it. I am assuming it is since it is still pre-tax.
What does the math in the 401k thread suggest to you?

Based on my calculation (not quite sure I am doing it right), it says I should do after tax and skip the 403b. Assumptions:

25% tax bracket now and at retirement, 1.5% expense ratio on fund, keep for at least 15 years. Probably even more expense than 1.5% when I add management fees or front load fees
Title: Re: 403b Investment Options....HELP!
Post by: MDM on July 18, 2017, 12:46:49 PM
Yea I am wondering if 1-1.5% is still worth it. I am assuming it is since it is still pre-tax.
What does the math in the 401k thread suggest to you?
Based on my calculation (not quite sure I am doing it right), it says I should do after tax and skip the 403b. Assumptions:

25% tax bracket now and at retirement, 1.5% expense ratio on fund, keep for at least 15 years.
Given those circumstances, your conclusion seems correct.

Some contracts (relevant if the 403b is associated with a union position) say a new 403b provider will be added if a number (can be small, e.g., 10) of people sign a letter requesting this.  If applicable, perhaps Vanguard, Fidelity, etc. could be added as a provider....
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 18, 2017, 12:54:53 PM
Yea I am wondering if 1-1.5% is still worth it. I am assuming it is since it is still pre-tax.
What does the math in the 401k thread suggest to you?
Based on my calculation (not quite sure I am doing it right), it says I should do after tax and skip the 403b. Assumptions:

25% tax bracket now and at retirement, 1.5% expense ratio on fund, keep for at least 15 years.
Given those circumstances, your conclusion seems correct.

Some contracts (relevant if the 403b is associated with a union position) say a new 403b provider will be added if a number (can be small, e.g., 10) of people sign a letter requesting this.  If applicable, perhaps Vanguard, Fidelity, etc. could be added as a provider....

Any recommendations on where to put the money? Fiance makes $90k and I make $125k. I am maxing my 401k out w/ Vanguard. We will probably marry next year. I looked at an IRA but we make both make too much.
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 18, 2017, 01:11:36 PM
Any recommendations on where to put the money? Fiance makes $90k and I make $125k. I am maxing my 401k out w/ Vanguard. We will probably marry next year. I looked at an IRA but we make both make too much.

Vanguard brokerage account?
Title: Re: 403b Investment Options....HELP!
Post by: MDM on July 18, 2017, 01:11:59 PM
Any recommendations on where to put the money? Fiance makes $90k and I make $125k. I am maxing my 401k out w/ Vanguard. We will probably marry next year. I looked at an IRA but we make both make too much.
See Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) for some thoughts (including a backdoor Roth IRA).

Also, at $215K MFJ you will likely have a 28% marginal rate, making the 403b somewhat more attractive then.
Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 19, 2017, 08:55:30 PM
My girl is a teacher and when we looked at her 403b options they were all expensive.  For some reason the low cost providers just seem to have zero presence in this market(at least in NY).  We went with one of the annuity based options as it had no upfront fees, 3% guarantee account(for her "bond" allocation), a few moderate cost funds, but it did have a big withdrawal fee that phased out over 7 years.  Having the money just "disappear" made it possible for her to start savings for retirement so while it sure wasn't the best option it was progress.
Title: Re: 403b Investment Options....HELP!
Post by: Debts_of_Despair on July 20, 2017, 05:33:46 AM
My girl is a teacher and when we looked at her 403b options they were all expensive.  For some reason the low cost providers just seem to have zero presence in this market(at least in NY).  We went with one of the annuity based options as it had no upfront fees, 3% guarantee account(for her "bond" allocation), a few moderate cost funds, but it did have a big withdrawal fee that phased out over 7 years.  Having the money just "disappear" made it possible for her to start savings for retirement so while it sure wasn't the best option it was progress.

Why are you doing an annuity?
Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 20, 2017, 11:15:34 AM
My girl is a teacher and when we looked at her 403b options they were all expensive.  For some reason the low cost providers just seem to have zero presence in this market(at least in NY).  We went with one of the annuity based options as it had no upfront fees, 3% guarantee account(for her "bond" allocation), a few moderate cost funds, but it did have a big withdrawal fee that phased out over 7 years.  Having the money just "disappear" made it possible for her to start savings for retirement so while it sure wasn't the best option it was progress.

Why are you doing an annuity?

Like I said the options were limited.  This was long time ago and $ is now happily in Schwab IRA:)
Title: Re: 403b Investment Options....HELP!
Post by: facepalm on July 20, 2017, 12:28:35 PM
For a Traditional IRA you contribute post-tax dollars but then deduct it when you file your taxes, making it effectively the same as a pre-tax 401k/403b. You can contribute up to $5500 depending on your income and such. Also, I should mention that you can typically contribute to both an IRA and a 401k/403b, but you may need to resort to just an IRA if the management company selection is too terrible.

More info from irs.gov:
https://www.irs.gov/retirement-plans/traditional-iras
https://www.irs.gov/retirement-plans/ira-deduction-limits

Thanks! I will definitely do this and then see what other employer choices are. I am going to call each and get their plans information today.  Also, I make $125k and my fiance makes $90k so not sure if this will work but will check the income limits

Here is some advice from a fellow teacher.

She makes too much to get an IRA tax deduction. The 403(b) is the better option.

What state are you in?

Have a look at VOYA. Your plan administrator should have a link to a website for your particular state/district. There you can find out whatever info you need as far a funds and fees go. In CA they charge a management fee of .025 per year, and offer us an assortment of funds, including Vanguard index funds. Most of the other options you listed will want to sell you an annuity. Run away.

After getting her 403(b) setup, open a ROTH IRA (if not already done). Dump $100 into it and forget about it. It will come in handy later if/when you want to do a ROTH ladder/conversion. Doing it now gets the clock ticking on the 5 year time window.

Here is what you should also be looking into: Does your girlfriend also qualify for a 457(b)? IRS rules allow for both. Of course, it depends on her district and plan administrator (whether they want to invest the time to set both types up) but if she did you might look at opening both a 457 after you get the 403 up and running.

I was thinking....Could I invest $18k pre-tax and then roll over every year to an IRA at Vanguard.
In short, no. Distributions from 403(b) accounts have to meet certain requirements.

From the IRS website:

Distributions
Permissible distributions.   Generally, a distribution canít be made from a 403(b) account until the employee:
Reaches age 59Ĺ;

Has a severance from employment;

Dies;

Becomes disabled;

In the case of elective deferrals, encounters financial hardship; or

Has a qualified reservist distribution.

Hope that helps.
Title: Re: 403b Investment Options....HELP!
Post by: MDM on July 20, 2017, 12:35:55 PM
In CA they charge a management fee of .025 per year, and offer us an assortment of funds, including Vanguard index funds.
Is that really 2.5%?

Quote
After getting her 403(b) setup, open a ROTH ira (if not already done). Dump $100 into it and forget about it. It will come in handy later when you want to do a ROTH ladder/conversion. Doing it now gets the clock ticking on the 5 year time window.
A Roth IRA is a good idea, but a contribution now doesn't affect the clock on a conversion later.  See Two 5-Year Rules For Roth IRA Contributions & Conversions (https://www.kitces.com/blog/understanding-the-two-5-year-rules-for-roth-ira-contributions-and-conversions/).

Quote
Here is what you should also be looking into: Does your girlfriend also qualify for a 457(b)? Many educators do. Of course, it depends on her district and plan administrator (whether they want to invest the time to set both up) but if she did you might look at opening both a 457 after you get the 403 up and running.
+1
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 20, 2017, 12:40:18 PM
For a Traditional IRA you contribute post-tax dollars but then deduct it when you file your taxes, making it effectively the same as a pre-tax 401k/403b. You can contribute up to $5500 depending on your income and such. Also, I should mention that you can typically contribute to both an IRA and a 401k/403b, but you may need to resort to just an IRA if the management company selection is too terrible.

More info from irs.gov:
https://www.irs.gov/retirement-plans/traditional-iras
https://www.irs.gov/retirement-plans/ira-deduction-limits

Thanks! I will definitely do this and then see what other employer choices are. I am going to call each and get their plans information today.  Also, I make $125k and my fiance makes $90k so not sure if this will work but will check the income limits

Here is some advice from a fellow teacher.

She makes too much to get an IRA tax deduction. The 403(b) is the better option.

What state are you in?

Have a look at VOYA. Your plan administrator should have a link to a website for your particular state/district. There you can find out whatever info you need as far a funds and fees go. In CA they charge a management fee of .025 per year, and offer us an assortment of funds, including Vanguard index funds. Most of the other options you listed will want to sell you an annuity. Run away.

After getting her 403(b) setup, open a ROTH IRA (if not already done). Dump $100 into it and forget about it. It will come in handy later if/when you want to do a ROTH ladder/conversion. Doing it now gets the clock ticking on the 5 year time window.

Here is what you should also be looking into: Does your girlfriend also qualify for a 457(b)? IRS rules allow for both. Of course, it depends on her district and plan administrator (whether they want to invest the time to set both types up) but if she did you might look at opening both a 457 after you get the 403 up and running.

I was thinking....Could I invest $18k pre-tax and then roll over every year to an IRA at Vanguard.
In short, no. Distributions from 403(b) accounts have to meet certain requirements.

From the IRS website:

Distributions
Permissible distributions.   Generally, a distribution canít be made from a 403(b) account until the employee:
Reaches age 59Ĺ;

Has a severance from employment;

Dies;

Becomes disabled;

In the case of elective deferrals, encounters financial hardship; or

Has a qualified reservist distribution.

Hope that helps.

Thank you for the advice! I will look into Voya too. Planmember Services offers a direct program which would cheaper, but it does not show it is an option through her employer. I am going to have her call to check. It is very cheap and you manage your own funds. I certainly do not need to pay someone to manage a Vanguard fund. LOL

Also, I do not think she qualifies for the 457 and besides they are showing the same companies. So not much better
Title: Re: 403b Investment Options....HELP!
Post by: facepalm on July 20, 2017, 01:32:25 PM
For a Traditional IRA you contribute post-tax dollars but then deduct it when you file your taxes, making it effectively the same as a pre-tax 401k/403b. You can contribute up to $5500 depending on your income and such. Also, I should mention that you can typically contribute to both an IRA and a 401k/403b, but you may need to resort to just an IRA if the management company selection is too terrible.

More info from irs.gov:
https://www.irs.gov/retirement-plans/traditional-iras
https://www.irs.gov/retirement-plans/ira-deduction-limits

Thanks! I will definitely do this and then see what other employer choices are. I am going to call each and get their plans information today.  Also, I make $125k and my fiance makes $90k so not sure if this will work but will check the income limits

Here is some advice from a fellow teacher.

She makes too much to get an IRA tax deduction. The 403(b) is the better option.

What state are you in?

Have a look at VOYA. Your plan administrator should have a link to a website for your particular state/district. There you can find out whatever info you need as far a funds and fees go. In CA they charge a management fee of .025 per year, and offer us an assortment of funds, including Vanguard index funds. Most of the other options you listed will want to sell you an annuity. Run away.

After getting her 403(b) setup, open a ROTH IRA (if not already done). Dump $100 into it and forget about it. It will come in handy later if/when you want to do a ROTH ladder/conversion. Doing it now gets the clock ticking on the 5 year time window.

Here is what you should also be looking into: Does your girlfriend also qualify for a 457(b)? IRS rules allow for both. Of course, it depends on her district and plan administrator (whether they want to invest the time to set both types up) but if she did you might look at opening both a 457 after you get the 403 up and running.

I was thinking....Could I invest $18k pre-tax and then roll over every year to an IRA at Vanguard.
In short, no. Distributions from 403(b) accounts have to meet certain requirements.

From the IRS website:

Distributions
Permissible distributions.   Generally, a distribution canít be made from a 403(b) account until the employee:
Reaches age 59Ĺ;

Has a severance from employment;

Dies;

Becomes disabled;

In the case of elective deferrals, encounters financial hardship; or

Has a qualified reservist distribution.

Hope that helps.

Thank you for the advice! I will look into Voya too. Planmember Services offers a direct program which would cheaper, but it does not show it is an option through her employer. I am going to have her call to check. It is very cheap and you manage your own funds. I certainly do not need to pay someone to manage a Vanguard fund. LOL

Also, I do not think she qualifies for the 457 and besides they are showing the same companies. So not much better

Glad to be of help. Most of the time districts use a plan administrator to oversee the nuts and bolts of the retirement plans (crazy paperwork requirements), and they get to decide who you can invest with. Stinks. If you can find a low cost option with some decent index funds, go for it. Regardless of whom you go with, there will be some sort of fee; even Vanguard is going to start charging $60 a year to manage my 403(b).
Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 20, 2017, 05:00:10 PM
Distributions
Permissible distributions.   Generally, a distribution canít be made from a 403(b) account until the employee:
Reaches age 59Ĺ;

not sure how much it matters to the OP, but

I am pretty sure you can take withdrawals with no penalty from 403b at 55+ if you leave employer at 55+.  It is a odd rule but if you leave employer before age 55 you have to wait for 591/2
Title: Re: 403b Investment Options....HELP!
Post by: TheOldestYoungMan on July 21, 2017, 08:44:56 AM
My plan through work lets us use VALIC, and I have access to a fund: VINIX which is the most ridiculous fund I've ever seen.  I've really enjoyed owning it.

Unfortunately you just have to wade through all the offerings at all the options.  The VOYA plan here has about 20,000 offerings in the catalogue, but only 18 you can actually pick, and none of them was particularly good.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 24, 2017, 03:15:14 PM
So I called around and Lincoln Investments seems to be the cheapest. They have a 0.9% fee plus the fund fees. However, offer Vanguard and other low expense funds. So I could get Vanguard for 0.04% + the 0.9% fee.

This seems the most reasonable. Thoughts?

Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 24, 2017, 04:52:56 PM
Well paying 94 bps for something you can get in Vanguard IRA for 4bps sucks.  I would only take that big extra cost on if 1)employer matches contributions and/or 2)you have already maxed out IRA and want to save more in retirement account.

You can set up IRA to auto deduct from your checking account to you make it simple to keep up with your savings plan.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 24, 2017, 05:01:43 PM
Well paying 94 bps for something you can get in Vanguard IRA for 4bps sucks.  I would only take that big extra cost on if 1)employer matches contributions and/or 2)you have already maxed out IRA and want to save more in retirement account.

You can set up IRA to auto deduct from your checking account to you make it simple to keep up with your savings plan.

Employer does not match, but since it is pre-tax I am saving quite a bit right? Also, I don't qualify for an IRA since I make too much income. I calculate the cost of 0.9% to be about $162 if I invest $18k. Taxes would be way more.
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 24, 2017, 07:54:51 PM
Well paying 94 bps for something you can get in Vanguard IRA for 4bps sucks.  I would only take that big extra cost on if 1)employer matches contributions and/or 2)you have already maxed out IRA and want to save more in retirement account.

You can set up IRA to auto deduct from your checking account to you make it simple to keep up with your savings plan.

Employer does not match, but since it is pre-tax I am saving quite a bit right? Also, I don't qualify for an IRA since I make too much income. I calculate the cost of 0.9% to be about $162 if I invest $18k. Taxes would be way more.

The fee compounds annually. The longer you are invested the more the fees will eat away at the tax savings. You'll have to do some calculations to figure out which one is better based on how long you will be invested and your tax bracket (now and during withdrawal).
Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 24, 2017, 08:01:45 PM
Well paying 94 bps for something you can get in Vanguard IRA for 4bps sucks.  I would only take that big extra cost on if 1)employer matches contributions and/or 2)you have already maxed out IRA and want to save more in retirement account.

You can set up IRA to auto deduct from your checking account to you make it simple to keep up with your savings plan.

Employer does not match, but since it is pre-tax I am saving quite a bit right? Also, I don't qualify for an IRA since I make too much income. I calculate the cost of 0.9% to be about $162 if I invest $18k. Taxes would be way more.

In that case you will save more in tax deduction and tax deferred investment than the 94bps of cost.  Just make mental note that if you leave your employer sometime down the road you can roll it into IRA with lower cost.
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 24, 2017, 08:01:59 PM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a). From this article (https://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html).
Title: Re: 403b Investment Options....HELP!
Post by: MDM on July 24, 2017, 08:08:55 PM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a).
Yup, that's one of the tools mentioned in  To 401k or not to 401k? That is the question. (https://forum.mrmoneymustache.com/investor-alley/to-401k-or-not-to-401k-that-is-the-question-43459/)
Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 24, 2017, 08:10:56 PM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a). From this article (https://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html).

Why does spreadsheet assume 7% returns in 403b and 7.5% returns in taxable accounts?  This doesn't seem like apples-to-apples comparison?

Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 24, 2017, 08:25:24 PM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a). From this article (https://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html).

Not sure I am doing this right. But the ROTH IRA seems to be best, however, I make too much income. $90k myself and fiance is $125k. We file separately but will be married next year.

Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 24, 2017, 08:39:49 PM
Without the choice of IRA, and being in higher tax bracket you won't be making a mistake by putting max into your 403b as the tax benefits are so significant :)
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 24, 2017, 09:04:44 PM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a). From this article (https://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html).

Why does spreadsheet assume 7% returns in 403b and 7.5% returns in taxable accounts?  This doesn't seem like apples-to-apples comparison?

I believe it's taking into account the higher expense ratio/fees in the 401k/403b and taxes on dividends in taxable. If you change the assumptions those numbers will change.


Not sure I am doing this right. But the ROTH IRA seems to be best, however, I make too much income. $90k myself and fiance is $125k. We file separately but will be married next year.

Only 5 years until you can roll it over? The fees aren't going to matter much on such a short timeframe. I would guess Roth is being suggested because your current and retirement marginal tax rates are the same but Roth wouldn't have the additional fees. Of course that doesn't matter if Roth isn't an option. The spreadsheet is still useful for comparing to taxable.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 24, 2017, 09:09:41 PM


Only 5 years until you can roll it over? The fees aren't going to matter much on such a short timeframe. I would guess Roth is being suggested because your current and retirement marginal tax rates are the same but Roth wouldn't have the additional fees. Of course that doesn't matter if Roth isn't an option. The spreadsheet is still useful for comparing to taxable.
[/quote]

I actually was not sure what rolling it over meant so I left it at 5. I didn't think you could withdraw from your 403b until retirement or if you leave your employer.
Title: Re: 403b Investment Options....HELP!
Post by: MDM on July 24, 2017, 09:13:11 PM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a). From this article (https://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html).
Why does spreadsheet assume 7% returns in 403b and 7.5% returns in taxable accounts?  This doesn't seem like apples-to-apples comparison?
401k accounts often have higher fees than "normal" taxable accounts.  403b accounts are usually worse.

Appears tfb's spreadsheet assumes a 0.5% annual fee in taxable.

For comparison, the '401k vs Taxable' tab in the case study spreadsheet (http://forum.mrmoneymustache.com/forum-information-faqs/case-study-spreadsheet-updates/) ought to lead to the same results, given the same inputs.
Title: Re: 403b Investment Options....HELP!
Post by: kenaces on July 24, 2017, 09:15:00 PM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a). From this article (https://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html).

Why does spreadsheet assume 7% returns in 403b and 7.5% returns in taxable accounts?  This doesn't seem like apples-to-apples comparison?

I believe it's taking into account the higher expense ratio/fees in the 401k/403b and taxes on dividends in taxable. If you change the assumptions those numbers will change.


I set the extra cost in 401k/403b to zero and it still show 0.5% difference in investment returns so we are either missing something or the spreadsheet isn't right?
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 25, 2017, 07:16:09 AM
Plug your assumptions into this spreadsheet (https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a). From this article (https://thefinancebuff.com/alternatives-to-a-high-cost-401k-or-403b-plan.html).

Why does spreadsheet assume 7% returns in 403b and 7.5% returns in taxable accounts?  This doesn't seem like apples-to-apples comparison?

I believe it's taking into account the higher expense ratio/fees in the 401k/403b and taxes on dividends in taxable. If you change the assumptions those numbers will change.


I set the extra cost in 401k/403b to zero and it still show 0.5% difference in investment returns so we are either missing something or the spreadsheet isn't right?

Taxes on dividends?
Title: Re: 403b Investment Options....HELP!
Post by: RWD on July 25, 2017, 07:18:01 AM
Only 5 years until you can roll it over? The fees aren't going to matter much on such a short timeframe. I would guess Roth is being suggested because your current and retirement marginal tax rates are the same but Roth wouldn't have the additional fees. Of course that doesn't matter if Roth isn't an option. The spreadsheet is still useful for comparing to taxable.

I actually was not sure what rolling it over meant so I left it at 5. I didn't think you could withdraw from your 403b until retirement or if you leave your employer.

Rolling it over means to transfer the 403b to an IRA. You can choose the provider (e.g. Vanguard) for your IRA which allows you to get the lowest possible fees. This can be done regardless of when your "retirement age" is without penalty as long as the accounts are of the same type (e.g. Traditional 403b->Traditional IRA). Usually you can't roll it over until you leave your employer. So you should set it to however many years you expect to stay at your employer.
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on July 25, 2017, 08:04:36 AM
Got it! Thank you for the explanation RWD. I don't plan on leaving until I retire since they have a great pension. I guess I will leave it at 25-30 years.
Title: Re: 403b Investment Options....HELP!
Post by: MountainTown on August 01, 2017, 11:16:56 PM
I don't mean to hijack this thread but I think it's relevant and I posted another now...

My wife is in the same boat. In fact I helped her start a 457 with Valic. Later on I noticed they were charging about .4 to .5% for fees. Of course I have researched and researched and can't find their management fee disclosed anywhere. My question is...since it's a 457 does  this maybe outweigh things? My thoughts are yes. In fact, we have another 457 that's from another job(she recently changed jobs) and I am torn over whether I should ask her to liquidate it or not as it also is about .44%.

Luckily the 403b fees are cheaper at .2%. But I have asked her to focus on the 457 as it creates so many opportunities for us...she can stay home if we have a baby....goto school....payoff a house...or fund early retirement!

That being said I was pretty surprised when I looked at her statements and saw the fees adding up as I was very deliberate in picking vanguard funds for her and never saw any management fee mentioned.

Help anyone? Are the awesome powers of the 457 worth a .5% fee? And if so...would you leave an old one hanging around or would you liquidate or roll into an IRA asap? Again, hate to do it as I love the 457 rules(and you lose them if you roll to IRA).
Title: Re: 403b Investment Options....HELP!
Post by: Broadway2019 on August 02, 2017, 09:31:06 AM
So we just signed the paperwork for PlanMember Services Direct Program. It was .35% annual fee, but after that just the fund expense fee. So Vanguard (VSTAX) would be .35% +.04% making this .39% to invest. Not the best but certainly not the worst. What I found irritating is I spoke to many companies and no one offered this option when I spoke to them. I had to dig around their crappy website and finally found this option after reading a lot of tiny print. When I asked about it they did not want to help me. Basically said you can go print the paperwork yourself and couldn't wait to get off the phone with me.

Also, what is so great about the 457 plan? The 403b and 457 looked the same to me.
Title: Re: 403b Investment Options....HELP!
Post by: MDM on August 02, 2017, 09:38:57 AM
Also, what is so great about the 457 plan? The 403b and 457 looked the same to me.
A governmental 457b has one advantage over a 403b: money may be withdrawn without penalty (not without tax), regardless of age, after leaving the employer.
Title: Re: 403b Investment Options....HELP!
Post by: BlueDove on November 23, 2017, 07:27:50 PM
Looks like the OP did not go with Lincoln Life, but just wanted to put a warning on this topic that, at least for me, the only option with Lincoln Life was an annuity, which comes with surrender charges of 6% to 1% if you move the funds.  Yay high expenses AND a surrender charge - NOT. 

My dilemma about whether to move in the last two years and suffer the surrender charge is here if anyone cares to weigh in, I would be grateful:

https://forum.mrmoneymustache.com/investor-alley/surrender-charge-vs-high-fees-am-i-looking-at-this-right/