My wife's investment options

[Cervelo123]

My wife any I have a combined AGI of 144K, 20K of it from her being an elem. teacher two days per week.   I already max out my 401K, both of our Roths, and 1K/month in a taxable account.  She has the option of a 401k or 457 which I would like her to start contributing to - they offer no matching contribution.     the lowest fee fund they offer is a manged fund with .26% fees.      I would love for her to have lower fee options via Vanguard, but they require 3K just to open an IRA account. 

Q:  Should she just go ahead and put her $100/month (all she wants to do right now) into the .26% fee fund via either the 401K or the 457?     Once it hits 3k, can we just roll it into an IRA with Vanguard and contribute there versus through her employer plan?  Is there a better idea for starting out her investment account, avoiding these higher fees, and then opening up a Vanguard IRA?

Thanks for the advice!

[rmendpara]

I wish I knew more about 457s and other teacher retirement plans.

Regarding what I do know, .26% is not bad at all! Don't get caught up in fees, I'd be more concerned about the fund's tracking error (i.e. over long periods of time, does it underperform the benchmark index?... you can look this up pretty easily on yahoo finance and just put two lines on a chart).

If the tracking error is low, the expense ratio is really irrelevant. Point being, what if the stated fees were 4.5%, but it still kept up with the stated benchmark index? This is not a realistic example, but my point stands. Concern yourself with tracking error first, and among the funds which have equivalent tracking errors (to the same benchmark), choose the one with lowest fees.

As far as contributing, no. As long as she works there, most plans (check with the plan documents) don't allow you to roll funds out until you leave the job.

At your income level, anything pretax will likely be valuable over time. Since you're already maxing out your 401k, two Roths, and $1k/mo in a taxable account, I'd just put as much as possible into the pre-tax employer plan and be done with it.

Again, .26% isn't going to hurt.

[hodedofome]

Can you not just open up a regular IRA and initially fund it with some extra money you have laying around? You are already saving $1k a month in a taxable account, just redirect a few months of that into her account if there's a $3k initial balance for Vanguard.

[MDM]

Can she put $17.5K of that $20K into a 401k?  If so, why not do it?

You appear to have a high enough AGI to have plenty left over after putting the $35K total into the 401k plans.

[Eric]

Unless I'm missing something, you can't do a Roth and a tIRA.  Well, you can, but the total limit is $5500.  So going through her employer would be the only way to go pre-tax. (while still maxing the Roth yearly)

[Cervelo123]

Thanks guys for taking the time to give me some good advice.  Right now the idea that has me interested and something I had not thought of before, is taking my 1K each month that I was going to use for a taxable investment and essentially use it to fund my wife's 457 plan.  I'll give her $1K each month and in tern I'll set her up to contribute $1K into her pre-tax 457 plan, plus whatever she can afford to add.   This will have us closer to maxing out all our tax deferred options.  All added up, including her pension and employer contributions we will be saving 50+% of our income.   I've always saved and contributed to my 401K, but it wasn't until last year that I stumbled on some of these blogs and it all took a whole new meaning.    I'm 42, she is 38, we have home (10 year,2.4% rate), have traveled extensively, had some great adventures, have $300K already saved up (this was all me via a very unfocused approach), so with this renewed team focus we have now, I think our FI is for sure doable.

The reason I will probably do the 457 plan, versus the 401K is for the no penalty withdrawl for early retirement benefit it offers.

Once she goes back to full time (we have a new baby) she can then add to the 1K per month and hopefully be able to the 17.5 per year, putting us on an even better footing.

My wife was never a saver before (she loved her shopping), but slowly, she is seeing the light and long term benefits of saving before spending.

Thanks!

[butchmonkey]

457 plans are great for the early withdrawal benefit once she severs ties with her employer.

This will be the first account to tap in FIRE because 457 plans are subject to her employers creditors in the event of bankruptcy.






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