Author Topic: Advice on maxing 403(b) w/o matching  (Read 2708 times)

sublime9528

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Advice on maxing 403(b) w/o matching
« on: July 20, 2014, 06:52:02 AM »
Hi everyone,

I was doing some financial planning with my soon-to-be fiancee and we've got some questions re: 403(b).  She's just started her residency a few weeks ago, which will last 4 years (+1 year of fellowship probably).  The hospital she works at offers a 403(b) without any matching, which is the only retirement plan available to her through the hospital at the moment.  Her salary is typical resident salary at ~$52k / year.  I was thinking that the smartest thing to do would be to take the maximum pre-tax deduction ($17,500) for the 403(b) and then max out a Roth IRA.  That's $23,000, or almost half her salary.  It would be tough, since we're good at saving, but not at the true mustachian level yet. 

My questions are:
(1) does my advice to her make sense?  Should she pour all this money into a non-matched 403(b)?
(2) are there alternatives out there that we haven't considered that would be better?

Our budgeting that we did came out that putting $23k in for retirement is the most she can do per year, so I don't think she can afford another investment on top of these two, should she choose to max these out.  But if we could put in $23,000 per year for 4 or 5 years until she finishes residency, then that investment could pay nice returns come retirement.  Any advice or insights appreciated.
Thanks!

sublime9528

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Re: Advice on maxing 403(b) w/o matching
« Reply #1 on: July 20, 2014, 06:56:45 AM »
Also, the 403(b) can be through either TIAA-CREF of Vanguard.  I'm inclined to go Vanguard after reading some other posts, but any comments on that choice is also appreciated. 

Another Reader

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Re: Advice on maxing 403(b) w/o matching
« Reply #2 on: July 20, 2014, 07:27:45 AM »
What are the investment options in the 403b plans?

Often 403b plans are annuities.  That's probably the case with TIAA-CREF.  She would have to look at the plan carefully if an annuity is the only option.  The better option is probably Vanguard, assuming the funds offered are low fee.

However, you are neither engaged nor married at this point.  Her planning should be for her future, not for a joint future, until that changes.  The question should be how much can she afford to save?

sublime9528

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Re: Advice on maxing 403(b) w/o matching
« Reply #3 on: July 20, 2014, 07:55:37 AM »
For Vanguard I believe she can choose whatever Vanguard mutual fund she wants.  Not sure about Cref, but I believe it's an annuity. 

Th other issue I forgot to mention is her debt. She's got ~200k in debt, give or take (can't remember the exact amount off the top of my head).   She's planning on doing this federal loan forgiveness program where she works in an "under served" area for 10 years while paying the minimum possible amount on her debt, and after 10 yrs the remaining debt is forgiven (or at least that's what the govt promises...).  This raises the issue of whether to (a) trust the governments promise that they'll forgive the debt, and pay the minimum amount while investing her income in the 403(b) and Roth, or (b) to just try and pay off the debt ASAP at the highest monthly amount now while foregoing investing for the moment.  I'm inclined to say (a) is the better choice because this is the only time she'll have to invest in a Roth, and should the government reneg on its promise, if worst comes to worst she can always withdraw from her Roth down the road to pay off the debt.

clarkm04

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Re: Advice on maxing 403(b) w/o matching
« Reply #4 on: July 20, 2014, 08:03:52 AM »
Your plan is sound.  A 403b will lower your tax bill and then whenever she moves on from residency, she can roll it over.

I'm very familiar with TIAA-CREF and Vanguard (I have accounts with both).  I'm partial to Vanguard, but it's untrue that you are stuck with an annuity if you go with TIAA-CREF.  TIAA has annuity based items, but any CREF funds are stock funds and even the TIAA funds, if you allocate into them, you can rollover whenever she moves on.

Being a teacher, I've only had 403b accounts and they are fairly easy to rollover. 

She should see HR to get information on both accounts so you can see what funds she has access to.  Even Vanguard can suck if there's limited fund choices.

Good luck and again, I think your plan is solid if you can pull off a full max on both.


milesdividendmd

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Re: Advice on maxing 403(b) w/o matching
« Reply #5 on: July 20, 2014, 10:45:42 AM »
Former resident here.

Your plans look great.

If she can max out 403b, max out Roth IRA, and make minimum payments on her student loan debt, she is far ahead of the curve.

Income based loan repayment is a great option for her and she likely doesn't have to work in under served communities. Non profit hospitals also qualify.

Vanguard is the best. You cannot do better.

You guys are hitting it out of the park already.

Good job.



rugorak

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Re: Advice on maxing 403(b) w/o matching
« Reply #6 on: July 21, 2014, 10:25:53 AM »
Most 403(b)'s these days are the same as 401(k)'s. The only difference is if your employer is for-profit or non-profit. More an FYI for everyone else since for some reason I read over and over on the forums that people think 403(b)'s are only annuities. At my previous employer when I started in the 403(b) annuities were in fact not an option but were eventually added a few leaders later.

I have TIAA-Cref or Fidelity as my choices in my 403(b) and I went with Fidelity due to the fact I could find choices with lower expense ratios (which just so happen to be the index funds I wanted anyway). All my personal stuff is with Vanguard. I take bets that unless her HR people choose horrid things in Vanguard that that will work out better.

I am torn on the forgiveness program. Honestly the way things are going I don't know that I trust the program to be there. The unwillingness to raise taxes on anything, even things that really need to be raised (the gas tax for the federal highway trust fund for example). Sooner or later the bills will need to be paid from somewhere. Plus life happens so something may come up that would take her away from the qualifying work. I have a coworker that says she is counting on that but then in the next breathe says her dream is to work for Google, but if she ever did get a job with them her forgiveness plan is out the window. That being said I think I still would go with your a) plan. As you said in a worst case scenario she could raid the Roth. But hopefully she would be making enough at that point that she could just pay them off without needing to raid those funds.

Oh and remember that the $17,500 is pretax. So the change in take home isn't quite that bad. In her tax range the change in take home would probably be closer to $13,000 less in take home.

For the TL;DR summary
Looks good with the plan a)
Vanguard
Remember tax advantaged is good. With or without match.