Author Topic: Is this 457 Worth the fees?  (Read 5507 times)

Jet9

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Is this 457 Worth the fees?
« on: December 18, 2015, 03:33:21 PM »
Hello everyone:

I'm a teacher and am already maxing out my 403-B through CALSTRS/VOYA; I'm grateful I have Vanguard options here. I also have the possibility to invest in a 457, but with a different company that doesn't offer VTSAX (Nationwide). I would really like to take advantage of the pre-tax 457, especially since I am planning to retire at 55, four and a half years before I am able to withdraw the 403-B, and the 457 would come in handy to bridge the gap. However, the fees and expense ratios for the Nationwide 457 seem like highway robbery (and that's for an unmanaged account).

$6 one time fee
$12 annual recordkeeping fee
$3.00 annual statement fee
.02 % of account value (asset based fee, daily).

I will have a small pension (between $2500-3000 monthly if I retire at 55) and am planning to max the Roth IRA each year.

Based on the fees above, is the pre-tax 457 worth it? If not, what would you all recommend I do with remaining available funds, around 10k annually?

Your advice would be appreciated, thanks!
« Last Edit: December 18, 2015, 05:56:14 PM by Jet9 »

naners

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Re: Is this 457 Worth the fees?
« Reply #1 on: December 18, 2015, 03:42:44 PM »
I'm part of the New York State 457. We have an annual fee of $20 plus 0.04% of assets. Since this isn't an employer sponsored plan someone has to pay the administrative costs and I think this is a fine deal. The more important question is what are the expense ratios of the funds inside the 457? The NYS plan has Vanguard Institutional Plus funds which are pretty fabulous, because they manage hundreds of millions of dollars. Combine this with the tax break from deferring and for me it's a no-brainer.

dandarc

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Re: Is this 457 Worth the fees?
« Reply #2 on: December 18, 2015, 03:46:14 PM »
Can you give us examples of funds available and the ER's there?  I find it hard to believe that you're being charged .02% per day - that alone would be more than 7% of your account value per year.  But I wouldn't be shocked if it was .02% of your average daily balance.

Because those fees, if you max the thing out, are only about 0.23% - $21 / $10K + .02%.  That's year one.  Since the $6 is one time, and the $15 is fixed, that goes down in subsequent years as your account balance goes up.

Depends on your tax bracket, but usually annual fees have to be a lot higher than that to overcome the tax savings.  So if that is on top of high-fee mutual funds, maybe.  But .23% and declining is typically not going to cost more than the tax savings.

PizzaSteve

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Re: Is this 457 Worth the fees?
« Reply #3 on: December 18, 2015, 04:13:42 PM »
Don't forget that when you quit the job, you can roll the assets into a self-managed account with a low cost provider like Vanguard, so fees are only a cost during the job.  I would go for it, as long as there are sub 1% fee investment options that are reasonable (e.g. S and P index).

dandarc

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Re: Is this 457 Worth the fees?
« Reply #4 on: December 18, 2015, 04:18:17 PM »
Don't forget that when you quit the job, you can roll the assets into a self-managed account with a low cost provider like Vanguard, so fees are only a cost during the job.  I would go for it, as long as there are sub 1% fee investment options that are reasonable (e.g. S and P index).
Doing so would cause the primary 457 benefit to go away.  Namely, penalty-free withdrawals before attaining 59.5.  Of course, if retiring at 55 as OP plans, you can always just do a SEPP plan - 5 years isn't too long to have to take those withdrawals.

Jet9

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Re: Is this 457 Worth the fees?
« Reply #5 on: December 18, 2015, 04:32:35 PM »
Thank you for your responses; perhaps I've read something incorrectly? Here are the fees for the 457:

The following fees and charges apply to this custodial account. Additional fees and charges may exist for funding options.

Exchange Fee
Amount:   0
When the Fee Applies:   At the time funds are withdrawn
How the Fee is Computed:   NA
Fee Waiver:   If the fee is submitted hardcopy a $6 fee will apply. The fee is waived if exchange is processed by web or voice response unit. Fund performance is not reported net of this fee.
Breakpoint:   NA
Capped:   Yes

Participant recordkeeping charge
Amount:   $12.00
When the Fee Applies:   Annual fee divided by 12 and deducted monthly
How the Fee is Computed:   Flat Dollar Amount
Fee Waiver:   None. Fund performance is not reported net of this fee.
Breakpoint:   None
Capped:   Yes

Annual participant statement fee
Amount:   $3.00
When the Fee Applies:   Annual fee divided by 4 and deducted quarterly
How the Fee is Computed:   Flat Dollar Amount
Fee Waiver:   None. Fund performance is not reported net of this fee.
Breakpoint:   None
Capped:   Yes

Asset Based Administration Fee
Amount:   .02%
When the Fee Applies:   Daily
How the Fee is Computed:   Percentage of account value
Fee Waiver:   No waiver. Fee is assessed to cover plan administration expenses and may be redetermined periodically. Prior year fund performance is reported net of prior year's Asset Based Plan Administration Fee in effect on 12/31/2013. Prior year's fee was 0.02%.
Breakpoint:   None
Capped:   No

Jet9

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Re: Is this 457 Worth the fees?
« Reply #6 on: December 18, 2015, 04:41:42 PM »
Here are the available funds within the 457: The Vanguard options range from .20-.25, but VTSAX is unfortunately not available.

   

The following funding options exist for this mutual fund. To view detail information, click on the funding option name.


Funding Option Name   Ticker Symbol
Invesco Energy Inv   FSTEX
Invesco Real Estate A   IARAX
Invesco Small Cap Growth A   GTSAX
American Funds Growth Fund of Amer R5   RGAFX
American Funds Inc Fund of Amer R5   RIDFX
American Funds Invmt Co of Amer R5   RICFX
Amer Funds SmallCap World R5   RSLFX
Dreyfus Opportunistic Midcap Value A   DMCVX
Franklin Biotechnology Discovery A   FBDIX
Nationwide Inv Destinations Agrsv Svc   NDASX
Nationwide Inv Destination Mod Agrsv Svc   NDMSX
Nationwide S&P 500 Svc   GRMSX
Vanguard Gr Idx   VIGRX
Vanguard REIT Index   VGSIX
Vanguard Sh-Tm Bd Idx   VBISX
Vanguard Wellesley Inc   VWINX
Vanguard Wellington   VWELX
Nationwide Money Market - Institutional Shares   GMIXX
Nationwide InvDes Cons SC   NDCSX
Thornburg Intl Val I   TGVIX
American Funds American Balanced R5   RLBFX
American Funds Capital Inc Bldr R5   RIRFX
American Funds Interm Bd Fd of Amer R5   RBOFX
American Funds New Perspective R5   RNPFX
American Funds Washington Mutual R5   RWMFX
Wells Fargo Advantage Utility & Telecom A   EVUAX
Nationwide Inv Dest Mod Svc   NSDMX
Oppenheimer Developing Markets A   ODMAX
Oppenheimer Gold & Special Minerals A   OPGSX
PIMCO Total Return A   PTTAX
Vanguard Inflation-Protected Secs   VIPSX
Vanguard Small Cap Value Index   VISVX
Fidelity Advisor Freedom 2020 A   FDAFX
Fidelity Advisor Freedom 2025 A   FATWX
Fidelity Advisor Freedom 2030 A   FAFEX
Fidelity Advisor Freedom 2035 A   FATHX
Fidelity Advisor Freedom 2040 A   FAFFX
Fidelity Advisor Freedom 2045 A   FFFZX
Fidelity Advisor Freedom 2050 A   FFFLX
Oppenheimer Main Street A   MSIGX
Principal MidCap Institutional   PCBIX
RidgeWorth High Income A   SAHIX
Vanguard Value Index Inv   VIVAX
Vanguard Windsor II Investor   VWNFX
Wells Fargo Advantage Discovery Inv   STDIX
American Funds Capital World Bond R5   RCWFX
Nationwide Inv Dest Mod Cnsrv Svc   NSDCX
 
    
    

Jet9

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Re: Is this 457 Worth the fees?
« Reply #7 on: December 18, 2015, 05:17:43 PM »
Thank you for the "SEPP" suggestion; I'd never heard of this before and will look into it.

Two examples of fees and expense ratios within the 457:

Vanguard Wellington:

Fee:   Expense Ratio
Fee Amount:   0.26%
When the Fee Applies:   Annually
How the Fee is Computed:   Percent of Annual Assets
Fee Waiver:   
Breakpoint:   
Capped:   No

Fee:   Management Fee
Fee Amount:   0.63%
When the Fee Applies:   Annually
How the Fee is Computed:   Percent of Annual Assets
Fee Waiver:   
Breakpoint:   
Capped:   No

Fidelity Freedom 2035:


Fee:   Expense Ratio
Fee Amount:   1.03%
When the Fee Applies:   Annually
How the Fee is Computed:   Percent of Annual Assets
Fee Waiver:   
Breakpoint:   
Capped:   No

Fee:   Management Fee
Fee Amount:   0.23%
When the Fee Applies:   Annually
How the Fee is Computed:   Percent of Annual Assets
Fee Waiver:   
Breakpoint:   
Capped:   No

dandarc

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Re: Is this 457 Worth the fees?
« Reply #8 on: December 18, 2015, 05:34:05 PM »
Thank you for the "SEPP" suggestion; I'd never heard of this before and will look into it.

Substantially Equal Periodic Payments.  Once you start, you have to take them for five years or until you reach 59.5 to avoid the 10% penalty.  So if you're retiring at 35, not particularly appealing, but at 55 the lack of fexibility isn't nearly as big a problem.

madamwitty

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Re: Is this 457 Worth the fees?
« Reply #9 on: December 18, 2015, 05:40:56 PM »
Don't forget that when you quit the job, you can roll the assets into a self-managed account with a low cost provider like Vanguard, so fees are only a cost during the job.  I would go for it, as long as there are sub 1% fee investment options that are reasonable (e.g. S and P index).
Doing so would cause the primary 457 benefit to go away.  Namely, penalty-free withdrawals before attaining 59.5.  Of course, if retiring at 55 as OP plans, you can always just do a SEPP plan - 5 years isn't too long to have to take those withdrawals.

If you retire at 55 can't you withdraw directly from the 403b with no penalty? Isn't that one of the special exceptions? Of course, that assumes OP will stick with the same employer until 55, but maybe that was already assumed for the pension?

Jet9

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Re: Is this 457 Worth the fees?
« Reply #10 on: December 18, 2015, 05:51:20 PM »
I do plan to be with the same employer.  I'm just beginning to grapple with financial literacy (you MIGHT have guessed), and I've never heard of special exemptions for the 403-B; something else to look into, thanks! Ideally though, I'd like to keep the 403-B intact a little longer, or at least have that option. The 457 will be  an additional pre-tax instrument and specifically designated for years 55-59 1/2 should I need it (I may decide to work elsewhere after 55).
« Last Edit: December 18, 2015, 05:54:45 PM by Jet9 »

MDM

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Re: Is this 457 Worth the fees?
« Reply #11 on: December 18, 2015, 09:04:31 PM »
If you retire at 55 can't you withdraw directly from the 403b with no penalty? Isn't that one of the special exceptions? Of course, that assumes OP will stick with the same employer until 55, but maybe that was already assumed for the pension?
Yes.  E.g., see http://www.forbes.com/sites/advisor/2012/05/09/did-you-know-you-can-access-your-401k-penalty-free-at-age-55/ and https://www.irs.gov/taxtopics/tc558.html.

If there is an employer change, rolling the current 403b into the new employer's plan preserves the option.

Jet9

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Re: Is this 457 Worth the fees?
« Reply #12 on: December 19, 2015, 08:49:12 AM »
Thank you, everyone!

So it seems the consensus is that the fees do not negate the value of the pre-tax savings, especially in a higher tax bracket. The Vanguard funds available in the 457 have reasonable Expense Ratios compared to others, but I'm not familiar with any of these funds yet. Do any good choices stand out that I should research? Something similar to VTSAX/VITSX?

Good to know the 403-B can be accessed early if needed, thanks for the info and the link!

Jet9

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Re: Is this 457 Worth the fees?
« Reply #13 on: December 19, 2015, 09:01:45 AM »
Can you give us examples of funds available and the ER's there?  I find it hard to believe that you're being charged .02% per day - that alone would be more than 7% of your account value per year.  But I wouldn't be shocked if it was .02% of your average daily balance.

I'm still wondering about this;  the .02% daily is what's worrying me - it does seem like it would have a huge impact. Did I misunderstand something? See the description of fees posted above.

Thank you again, everyone.

Gin1984

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Re: Is this 457 Worth the fees?
« Reply #14 on: December 19, 2015, 09:07:52 AM »
VWINX is a combined bond/stock fund which might be ok if you don't have bonds and want some.  However I might just put it in the bond fund in that case.

Jet9

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Re: Is this 457 Worth the fees?
« Reply #15 on: December 19, 2015, 09:13:53 AM »
Thank you; I'll look into it VWINX. I am thinking my pension acts a lot like bonds, so I was hoping for a more aggressive choice, but since I have the 457 earmarked for possible withdrawals in 9 years, maybe a more balanced approach makes sense.

seattlecyclone

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Re: Is this 457 Worth the fees?
« Reply #16 on: December 19, 2015, 09:17:52 AM »
That 0.02% fee: do they actually charge you 0.02% every day, or is it 0.02%/365 every day based on that day's balance? This makes a huge difference.

Jet9

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Re: Is this 457 Worth the fees?
« Reply #17 on: December 19, 2015, 10:52:57 AM »
Seattle, that is my question and concern; finding someone to answer this question has of yet proved to be an insurmountable task, yet signing up to give them my money will be done in a matter of seconds. I called Nationwide, who sent me on a wild goose-chase to find a local representative for my school district...all of which handed me off to someone else. Hope to find someone eventually!

Another Reader

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Re: Is this 457 Worth the fees?
« Reply #18 on: December 19, 2015, 11:15:12 AM »
.02 percent of a stable amount times 365 days is 7.3 percent.  It's very unlikely that this is the case.  More likely, the company is trying to capture 0.2 percent annually based on daily measurement of your balance.  Most providers use a snapshot to assess the annual fee, at least in my experience.  Often it's done quarterly.

Jet9

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Re: Is this 457 Worth the fees?
« Reply #19 on: December 19, 2015, 04:21:43 PM »
Thanks; I'll be sure to ask if it's really a daily assessment or just a daily average measured annually before I venture any further.