Basic Starter Kit?

[sleepyjen]

Hi all,

When I search the forums it only gives me thirty responses, so if there's an answer to my query, please point me in its direction--it likely didn't come up for me.

I work FT in a university; I put enough +2% into my 403b to get the company match of 11% (the best bennie we have!). My husband has an IRA we've been funding just the last couple of years, maxing out the $5500 for tax deductions.

My questions:
Should I keep adding to the percent I'm putting in my 403b, or should I consider index funds? I know MMM is all about Vanguard funds, but I confess that the how-to of buying them isn't something I've found yet. So question 2: How does one do that? I went to Vanguard's site a few days ago and saw their "get an IRA" options, but I'm guessing y'all are doing something else.

Basically, if there's a nuts-and-bolts starter kit on MMM, I'd love to see it.
Thanks!
J.

[andy85]

a little checklist that forum member MDM often posts...

WHAT
0. Establish an emergency fund to your satisfaction
1. Contribute to 401k up to any company match
2. Pay off any debts with interest rates ~5% or more above the 10-year Treasury note yield.
3. Max HSA
4. Max Roth or Traditional IRA based on income level
5. Max 401k (if 401k fees are lower than available in an IRA, swap #4 and #5)
6. Fund mega backdoor Roth if applicable
7. Pay off any debts with interest rates ~3% or more above the 10-year Treasury note yield.
8. Invest in a taxable account with any extra.

WHY
0. Give yourself at least enough buffer to avoid worries about bouncing checks
1. Company match rates are likely the highest percent return you can get on your money
2. When the guaranteed return is this high, take it.
3. HSA funds are totally tax free when used for medical expenses, making the HSA better than either traditional or Roth IRAs.
4. Rule of thumb: trad if current marginal rate is 25% or higher; Roth if 10% or lower; flip a coin in between
5. See #4 for choice of traditional or Roth for 401k
6. Applicability depends on the rules for the specific 401k
7. Again, take the risk-free return if high enough
8. Because earnings, even if taxed, are beneficial

[erae]

Good morning, Sleepyjen

Yep. Go to Vanguard and "get an IRA" then do a little research on investing and choose which index funds you want to buy with your $5500/year. With regards to maxing out your 403b, the answer depends on which mutual funds you're currently buying through your employer. Many employment programs only offer investment options with high annual maintenance fees (usually expressed as a percentage per year called an Expense Ratio). If you can't max out both the 403b and the IRA each year, definitely hit tht 2% match and then funnel the rest of your money into whichever has the best investment options.

[KCM5]

Basically when people say to buy Vanguard funds, within a 403(b) or a 401(k) they mean try to find the cheapest index fund.

Personally, for simplicity, I buy a lifecycle fund. I think the one that's offered in my 457(b) is BlackRock 2060 or something like that. The fee is about 0.5%. The Vanguard lifecycle funds are about 0.14%, but that's if your plan offers it and doesn't add any additional fees (mine adds 0.2% and doesn't offer Vanguard).

If I were you, it sounds like your having problems making a decision about where/how to invest your money. I would check that my IRA was invested in low fee funds. If the fees on your current IRA are higher than 0.25% or so, call Vanguard and transfer it to them. Put in in a lifecycle fund (Vanguard Target Retirement 20xx) or a whole market fund (VTSMX). Set up a monthly autopay if that's how you'd like to fund it ($458/mo).

Once that's set, look at your 403(b) and find the low fee target date or whole market fund. Invest as much of your money as you can in your 403(b) until it's maxed.

One thing to check - do you have a 457(b)? If you do, take a look at that - you can take money from it as soon as you separate from your employer, so it's great for early retirement. 

[WildJager]

Head over to Google.  Type in "site:forum.mrmoneymustache.com Vanguard".  Replace Vanguard with whatever you want to search for.  That method is much better than the built in search.  As these forums have grown, the in house process broke.

[terran]

Lots of universities have really good investment options in their 403b (sometimes even better than those available to a regular retail investor at vanguard). Feel free to post your investment options (ideally fund name, ticker, and expense ratio) and I'm sure people will chime in with their suggestions.

[teamzissou00]

not to hijack, but I'm always struggling on the HSA recommendations - especially if you have some young kids and spend $3-6k a year on medical costs out of pocket. 

When I look up the HSA data on the internet, this always strikes a chord....do they have their data wrong?

One of the features that incorrectly attracts many employees to HDHPs is the ability to set up a Health Savings Account, or HSA. Unfortunately, HSAs that receive an employer contribution are usually required by the insurance provider to be kept at an institution that offers poor choices of investment products and have high fees, which leads to subpar long-term investment performance. HSAs that do not receive an employer contribution can be held anywhere, but as we explained earlier, an HDHP without an employer contribution to an HSA doesn’t make much sense.

Mandated HSA plans usually have a smaller basket of mutual funds from which to choose than 401(k)s and they are often higher-expense and therefore poorer-performing. I saw this firsthand at a previous employer. Repeated academic research has shown that actively managed mutual funds on average underperform index funds by 2.1% per year.3 Many HSA plans only put your money in money market funds or savings like accounts, which generally underperform inflation. That is even worse than underperforming relative to an index fund.

HSAs are often loaded with fees. Many charge a fee for using your HSA debit card at the doctor’s office or pharmacy. Many also charge fees for individual trades, as well as monthly and annual custodian fees just for keeping your money in the account. You may also be asked to pay a “closing fee” too, if you want to move the account to another custodian. In total, the fees on an HSA can easily add up to at least $150 per year.

[CptCool]

not to hijack, but I'm always struggling on the HSA recommendations - especially if you have some young kids and spend $3-6k a year on medical costs out of pocket. 

When I look up the HSA data on the internet, this always strikes a chord....do they have their data wrong?

One of the features that incorrectly attracts many employees to HDHPs is the ability to set up a Health Savings Account, or HSA. Unfortunately, HSAs that receive an employer contribution are usually required by the insurance provider to be kept at an institution that offers poor choices of investment products and have high fees, which leads to subpar long-term investment performance. HSAs that do not receive an employer contribution can be held anywhere, but as we explained earlier, an HDHP without an employer contribution to an HSA doesn’t make much sense.

Mandated HSA plans usually have a smaller basket of mutual funds from which to choose than 401(k)s and they are often higher-expense and therefore poorer-performing. I saw this firsthand at a previous employer. Repeated academic research has shown that actively managed mutual funds on average underperform index funds by 2.1% per year.3 Many HSA plans only put your money in money market funds or savings like accounts, which generally underperform inflation. That is even worse than underperforming relative to an index fund.

HSAs are often loaded with fees. Many charge a fee for using your HSA debit card at the doctor’s office or pharmacy. Many also charge fees for individual trades, as well as monthly and annual custodian fees just for keeping your money in the account. You may also be asked to pay a “closing fee” too, if you want to move the account to another custodian. In total, the fees on an HSA can easily add up to at least $150 per year.

You don't have to use the same bank that your company promotes. If there is a company contribution, then it has to go into that bank's HSA account, but anything else can go to any HSA provider. Yes, there is usually small fees involved that are generally higher than an IRA, but that's because the bank has to do a lot more admin work for an HSA. You can usually find one that has good investment options and relatively low fees pretty easily & it does make sense to conribute to it as it is tax free dollars that can be used immediately if you are spending 3-6k per year on medical costs. Also look into an FSA in addition to the HSA if you are spending a portion on FSA-eligible expenses

[Proud Foot]

not to hijack, but I'm always struggling on the HSA recommendations - especially if you have some young kids and spend $3-6k a year on medical costs out of pocket. 

When I look up the HSA data on the internet, this always strikes a chord....do they have their data wrong?

One of the features that incorrectly attracts many employees to HDHPs is the ability to set up a Health Savings Account, or HSA. Unfortunately, HSAs that receive an employer contribution are usually required by the insurance provider to be kept at an institution that offers poor choices of investment products and have high fees, which leads to subpar long-term investment performance. HSAs that do not receive an employer contribution can be held anywhere, but as we explained earlier, an HDHP without an employer contribution to an HSA doesn’t make much sense.

Mandated HSA plans usually have a smaller basket of mutual funds from which to choose than 401(k)s and they are often higher-expense and therefore poorer-performing. I saw this firsthand at a previous employer. Repeated academic research has shown that actively managed mutual funds on average underperform index funds by 2.1% per year.3 Many HSA plans only put your money in money market funds or savings like accounts, which generally underperform inflation. That is even worse than underperforming relative to an index fund.

HSAs are often loaded with fees. Many charge a fee for using your HSA debit card at the doctor’s office or pharmacy. Many also charge fees for individual trades, as well as monthly and annual custodian fees just for keeping your money in the account. You may also be asked to pay a “closing fee” too, if you want to move the account to another custodian. In total, the fees on an HSA can easily add up to at least $150 per year.

You don't have to use the same bank that your company promotes. If there is a company contribution, then it has to go into that bank's HSA account, but anything else can go to any HSA provider. Yes, there is usually small fees involved that are generally higher than an IRA, but that's because the bank has to do a lot more admin work for an HSA. You can usually find one that has good investment options and relatively low fees pretty easily & it does make sense to conribute to it as it is tax free dollars that can be used immediately if you are spending 3-6k per year on medical costs. Also look into an FSA in addition to the HSA if you are spending a portion on FSA-eligible expenses

Bolded - Be very careful with this.  While you may be able to set up a FSA alongside a HSA, the FSA is very limited. If you are paying 3-6k each year on medical costs then even using the HSA to pay for those expenses may be beneficial.  You do get to skip FICA taxes on your contributions so you would need to whether it makes more sense to leave that money in the HSA and invest it, or to use the money to pay the expenses.

[sleepyjen]

Thanks for all of this. I didn't know if ppl had non-IRA brokerage funds at Vanguard in which their $ was more liquid--and gains more easily accessible--than a retirement-based fund.

I have an HSA adn keeping some serious $ in it has proved beneficial when we've needed it! We're in a rebuild period now which is kind of a bummer, but that's what it was there for.

[fattest_foot]

Lots of universities have really good investment options in their 403b (sometimes even better than those available to a regular retail investor at vanguard). Feel free to post your investment options (ideally fund name, ticker, and expense ratio) and I'm sure people will chime in with their suggestions.

I didn't even realize how good they can have it.

My mom came to visit earlier this month and I took a look at her numbers (to see how far from retirement she is). Her 403b has an 8.9% match on the first $62k of income, and then 13.2% above that, up to the first $270k in income. I was a little stunned at how generous that is.

[secondcor521]

Thanks for all of this. I didn't know if ppl had non-IRA brokerage funds at Vanguard in which their $ was more liquid--and gains more easily accessible--than a retirement-based fund.

I have an HSA adn keeping some serious $ in it has proved beneficial when we've needed it! We're in a rebuild period now which is kind of a bummer, but that's what it was there for.

You can have multiple accounts at Vanguard.  For example, I have a Roth IRA, a traditional IRA, and a regular brokerage account with them.  Inside each of those accounts, you can buy any Vanguard funds you like.  Most funds have a minimum amount to get started - usually a few thousand dollars.  But once you make your initial investment, you can add as little or as much as you like after that.

If you want to open a taxable account, just give them a call and they'll walk you through it over the phone.  Or I'm sure there's a way to do it via their website.

Good luck!

[sleepyjen]

Thanks! I appreciate it!

[terran]

Lots of universities have really good investment options in their 403b (sometimes even better than those available to a regular retail investor at vanguard). Feel free to post your investment options (ideally fund name, ticker, and expense ratio) and I'm sure people will chime in with their suggestions.

I didn't even realize how good they can have it.

My mom came to visit earlier this month and I took a look at her numbers (to see how far from retirement she is). Her 403b has an 8.9% match on the first $62k of income, and then 13.2% above that, up to the first $270k in income. I was a little stunned at how generous that is.

Yep, about 10% is pretty standard. The highest I've seen is 15% (with a required 15% employee contribution that doesn't count towards the $18k deferral limit), but that was for a state school that's exempt from social security, so you have to consider that eventual loss of income.

Investment options are often good too. Vanguard institutional funds (which require a $5 million minimum across the institution and have lower fees than admiral class shares) are somewhat common.

[sleepyjen]

I started putting in the minimum for the match as soon as I could--otherwise, I'd be leaving 11% of my salary, essentially, on the table every year, which would be nuts. I have my 403b in a 40yr lifecycle fund, so at this point it's pretty aggressively invested.

[runewell]

not to hijack, but I'm always struggling on the HSA recommendations - especially if you have some young kids and spend $3-6k a year on medical costs out of pocket. 

Agreed I would not necessarily max out an HSA.  That is a good way to save on taxes if you have medical costs coming (since almost nothing in this world is tax-free) so I would want some HSA balance to pay for regular medical expenses.  For younger people it could be more necessary to save up for home ownership, for instance.

[Laura33]

Thanks for all of this. I didn't know if ppl had non-IRA brokerage funds at Vanguard in which their $ was more liquid--and gains more easily accessible--than a retirement-based fund.

I have an HSA adn keeping some serious $ in it has proved beneficial when we've needed it! We're in a rebuild period now which is kind of a bummer, but that's what it was there for.

I do have taxable accounts with Vanguard outside my retirement funds.  However, I maxed out my available retirement accounts first -- for most people, the tax benefits of the retirement accounts, plus the ability to roll over and convert to a Roth when your tax rate is lower, makes it so most people come out better maxing out retirement funds before investing post-tax in a regular brokerage account.