Author Topic: Rookie mistakes with 403b & 457b  (Read 4163 times)

ladonnabaffuta

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Rookie mistakes with 403b & 457b
« on: July 16, 2018, 04:29:47 PM »
Hi, all.

Preface: I've read through most of the threads that relate to 457b accounts, but I want to post my situation here for advice.

Stats:
Me: 34 years old, $49,500 annual salary
Husband: 34 years old, $127,500 annual salary (excluding bonuses)

Due to delayed entry into the work force (PhDs; he finished, I quit), my husband began saving for retirement at 31 and I began at 32. (Panic!) I just hit $30k in my combined accounts and he has approximately 35-40k in his 401(k).

I work in the UC system in California, which means that I have access to the following retirement vehicles:

1. UCRP Savings Plan (mandatory 7% employee / 8% employer contribution)
2. 403b (I currently contribute $1,375/month, but this was not my starting rate)
3. 457b

457b info here: https://ucnet.universityofcalifornia.edu/forms/pdf/457b-deferred-compensation-plan.pdf   

Because I was such a noob, I first thought that the 403b and 457b were mutually exclusive. Only recently did I realize the error of my ways, and want to start contributing to the 457b. Fortunately, I've only lost 1.5 years of investment time.

Questions:

1. I assume that my 457b is governmental, but what is the best way to verify that?
2. Should I specifically look for language in the documentation that the account is "held in trust for the employee"?
3. The administrative fee is currently $8.75/quarter. Only one fee is applied to all accounts, so I will not be paying any additional fees for opening the 457b. There is still an expense ratio, which varies from option to option. How important is the expense ratio in choosing a fund?
4. Would it be better to max out the 457b first and then the 403? (My husband and I have talked about maxing out both my accounts to decrease our tax liability, but haven't fully decided yet.)

Are there any other issues or concerns that I may be overlooking?

Thanks all for any guidance you can provide!

terran

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Re: Rookie mistakes with 403b & 457b
« Reply #1 on: July 16, 2018, 04:58:19 PM »
My wife works for a state university, so I'm well versed in 403(b) and 457(b) plans.

1) You could ask HR if you want, but State school = governmental. I wouldn't worry about it. Page 12 of the document you linked actually says it's governmental.
2) I wouldn't worry about it since you work for a state school.
3) Expense ratio's are very important. It reduces your returns by the amount of the expense ratio and then compounds over time. A 1% expense ratio is just like 1% worse returns. That said, I wouldn't worry about a 0.1% expense ratio if it gets you the fund you want (using a target date fund instead of the component parts for example). If you post your options, including expense ratios, I'm sure someone will help you
4) All other things being equal (fees and available funds), yes I would. The 457 is usually just like the 403(b) except without early withdrawal penalties which is great for early retirement. Definitely try to max them both out. I bet you can given your total household income.

ladonnabaffuta

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Re: Rookie mistakes with 403b & 457b
« Reply #2 on: July 16, 2018, 07:11:05 PM »
Thank you, terran! I thought I read that doc thoroughly, but apparently not. *Cringes*

I will post the fund information tomorrow.

ladonnabaffuta

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Re: Rookie mistakes with 403b & 457b
« Reply #3 on: July 17, 2018, 10:04:30 AM »
Hi, again. I've attached the information about the 457(b) plan options. These are specific to UC, but any guidance on how to choose the best option would be appreciated!

terran

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Re: Rookie mistakes with 403b & 457b
« Reply #4 on: July 17, 2018, 10:57:37 AM »
Not sure people are going to be able to help too much since these are proprietary funds and it doesn't seem like more information can be accessed without logging in to Netbenefits. See if you can find 1) the expense ratio and 2) the underlying index or mutual fund that the UC fund is based on. For example, the PDF you linked says the UC Domestic Small Cap Equity Fund is based on the Vanguard Small Cap Fund. If a fund doesn't say this, it should at least say the index it's based on.

To start, try to find this information for:

  • Any one of the UC Pathway Funds (target date funds)
  • UC Domestic Equity Index Fund
  • UC Bond Fund
  • UC International Equity Index Fund

Depending on the indexes those follow there might be others to look up.

If you click on the fund name on the page you printed that PDF from you should get a popup with the Net Expense ratio under details (probably the same as gross expense ratio, but if they're different, post the net) and then under Fund Overview and Strategy, hopefully it will say something like "The fund employs an indexing investment approach designed to track the performance of the FTSE Global All Cap ex US Index" (this is what it says in Netbenefits for my wife's plan for the Vanguard Total International Stock Index Fund.

hadabeardonce

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Re: Rookie mistakes with 403b & 457b
« Reply #5 on: July 17, 2018, 11:14:37 AM »
At the very bottom under "Additional Investment Options" you have "BROKERAGELINK", which looks like it would open up a Fidelity Self-Directed Brokerage Account(SDBA) that would allow you to invest in more universally known fund names and determine your own asset allocation. I do that with my own 457 through another school district.

https://www.myucretirement.com/Managed/Assets/File/1528473197/UC_Fund_Descriptions_August_2016.pdf

You'd probably be pretty safe with a mix of the UC Bond Fund, UC Domestic Equity Index Fund and UC International Equity Index Fund and it would be hard to beat expense ratios as low as .03%, .005%, and .01%.

terran

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Re: Rookie mistakes with 403b & 457b
« Reply #6 on: July 17, 2018, 11:44:03 AM »
I realized that I didn't scroll down far enough in the PDF you uploaded. The expense ratios are there (and they're ridiculously low, so congrats on that).

From that, along with the link hadabeardonce posted,

  • Any one of the UC Pathway Funds (target date funds) - Expense ratios in the 0.05-0.07% range. This is less than the expense ratios of publicly available target date funds and would be a perfectly good option if you want to just set it and forget it. They say the " current underlying fund holdings and weights can be found under the Composition tab on netbenefits.com"
  • UC Domestic Equity Index Fund - Expense ratio of 0.005% which is crazy low. It follows the Russel 3000 index, except it excludes tobacco stocks, which is kind of strange, but probably won't mess you up too much. I'd feel pretty comfortable using this as a total stock market stand in (like the often recommended Vanguard VTSAX)
  • UC Bond Fund - Expense ratio of 0.03% which is low. Managed by the state of California which could be either a good thing or a bad thing depending on if they're any good. I'd probably skip it if you can invest in however many bonds you want in other accounts so you don't have to look into it any more.
  • UC International Equity Index Fund - expense ratio of 0.01% which is also crazy low. Follows the MSCI World ex US IMI, except again excluding tobacco companies. I'd feel comfortable using this as a total international fund much like the often recommended Vanguard VTIAX.

I think you'd be fine with any/all of those except maybe the bond fund, but that's just from not knowing enough, not that it's either good or bad.

Anything between 60-100% equities (and 0-40% bonds) would be reasonable, and making international 20-40% of equities (although you'll find proponents for anywhere from 0-50%). Remember that you don't have to keep your asset allocation in every account, just make it work across all your accounts.

Take a look at https://www.bogleheads.org/wiki/Asset_allocation

ladonnabaffuta

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Re: Rookie mistakes with 403b & 457b
« Reply #7 on: July 17, 2018, 05:32:03 PM »
Thank you @terran and @hadabeardonce ! I was feeling overwhelmed by all the terms I didn't understand and could feel decision paralysis setting in. You've given me some things to research before I meet with a Fidelity advisor next week. And, it's nice to know that I mostly can't go wrong with these choices.

Thanks!

terran

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Re: Rookie mistakes with 403b & 457b
« Reply #8 on: July 17, 2018, 08:26:22 PM »
Well, there are also funds I would probably avoid such as UC Growth Company Fund with and expense ratio of 0.38% and UC Diversified International Fund with and expense ratio 0.58% which seem to be actively managed funds. Avoid funds that talk about outperforming some index as UC Diversified International Fund does.