Author Topic: Taxes on "swapping" Index Funds within wife's 403b  (Read 942 times)

TG Park

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Taxes on "swapping" Index Funds within wife's 403b
« on: January 01, 2022, 07:53:21 AM »
Hi All, I'm pretty sure I know the answer but just wanted to quickly poll the audience:

After looking over DW's fund choices within her 403b, we've discovered she's in a 2040 Target Date fund which is 80% equities/20% bonds. We'd like to be more like 90/10 so I'm thinking we move her into a 2060 Target Date fund. On the website she has the option to "swap" funds - which I'm assuming means that everything in the 2040 fund will be sold and used to buy the new one.

Because it's within a (pre-tax) 403b, there shouldn't be any tax consequences, correct?
Thanks!

maizefolk

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #1 on: January 01, 2022, 08:08:41 AM »
Because it's within a (pre-tax) 403b, there shouldn't be any tax consequences, correct?

Correct.

DaTrill

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #2 on: January 01, 2022, 01:48:26 PM »
No tax, just buy 90% index fund, skip the target date fees. 

jinga nation

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #3 on: January 03, 2022, 11:17:25 AM »
No tax, just buy 90% index fund, skip the target date fees.

Agree.

Here's a 2016 blog post from Guideline (my employer's 401k administrator)
https://www.guideline.com/blog/your-target-date-fund-is-not-great/

and a 2013 interview with Jack Bogle:
https://www.morningstar.com/articles/615383/bogle-target-date-funds-have-a-flaw

cool7hand

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #4 on: January 03, 2022, 11:36:13 AM »
No tax, just buy 90% index fund, skip the target date fees.
+1

jinga nation

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #5 on: January 03, 2022, 11:38:56 AM »
related/unrelated:
https://www.marketwatch.com/articles/your-401-k-could-soon-offer-annuities-for-lifetime-income-51610152521

Quote
Target-date funds are about to undergo a major face-lift. These asset-allocation funds in your 401(k), with end dates like 2030 or 2040 to match your expected retirement, will soon add more unusual investments—annuities and perhaps even private equity—to their stock/bond portfolio mix.

The simplest solution is often the best solution. Index fund > target date fund.

TG Park

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #6 on: January 07, 2022, 07:43:20 AM »
The fund is VIRSX (Vanguard Institutional Target Retirement 2040 Fund)...

https://investor.vanguard.com/mutual-funds/profile/VIRSX

..which has .09% expense ratio. That's a number I'm comfortable with. Are you all saying there are other hidden fees that aren't being shown?

It was ages ago that we looked at the fund options within her 403b and I remember this being the best looking lowest fee of a mediocre bunch.

terran

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #7 on: January 07, 2022, 08:14:47 AM »
No, the institutional class target date funds have very low fees (albeit double what a similarly allocation constructed from ETFs would be). If you're comfortable with the target date fund feel free to stick with that until you want a different asset allocation. 

TG Park

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #8 on: January 07, 2022, 08:37:12 AM »
Thanks terran. So I'm actually scrolling through her available options now..after setting filters to show only mutual funds with U.S. equities with <.2% expense ratio, I am seeing:

- Vanguard Institutional Index Fund Institutional Plus (VIIIX), a Large Blend with .02% expense      
- Vanguard Mid-Cap Index Fund Institutional (VMCIX), a Mid-Cap Blend with .04% expense         
- Vanguard Small Cap Index Fund Institutional Plus Class (VSCPX), a Small Blend with .03% expense
      
Questions:
1) When I pull up these funds on Vanguard's site, they're all showing a minimum investment of 10 to 100 MILLION dollars(?!). Does this mean those minimums are being waived simply because the funds are being offered through her employer?   

2) Since most of our portfolio is invested in VTSAX and we'd like to stay as close to that as possible within her 403b, sounds like VIIIX - the Large Blend one with the lowest expense ratio that tracks the S&P 500 - is the obvious choice, yes?
« Last Edit: January 07, 2022, 09:02:33 AM by TG Park »

terran

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Re: Taxes on "swapping" Index Funds within wife's 403b
« Reply #9 on: January 07, 2022, 02:14:57 PM »
1) Either that or her employer actually does have that much invested across all the employees. You definitely don't need to hit that minimum.

2) All VIIIX will be about 80% the same as your VTSAX investments. You could add some mid-cap to get it closer, and some small cap to get it closer still if you want to approximate the total market in her 403(b).