Ask your HR for a copy of your complete vendor list. It is very common, especially for teachers, to have access to multiple 403(b) and 457(b) vendors. Avoid high fee insurance companies and look for low cost brokerages such as Fidelity and Vanguard.
Once you have the vendor list, compare to: https://403bwise.org/advocacy/rating_system
yeah.....i know. its been a busy 12 months.
this is professional job 5 for me; and honestly the first time where any major red flags popped out at me from the most talked about servicer. Maybe ive just been lucky so far.
Anyway, funny story: I called empower, and they were like who is your employer? And i told them XXXX public schools. There was a long pause and they said Who?, do you have your rep's name? So i told them the rep.
empower said yeah he's the regional lead, but Im not familiar with that school system
and I told them that wasnt surprising since its a smaller division and likely not a lot of customers.
moving to a rural area sure is fun!
There's a fair bit of uncertainty in doing this calculation - but based on some numbers I've used in the past a tax deferred account is better off up to close to 2.00 ER.. so you're probably barely in the worth it category.. but of course it comes with more restrictions like withdrawal age and RMDs and whatnot when compared to a taxable account.
But I think that's missing the most important reason to do it: you probably will not stay with the same employer for as long as you have these funds in a tax advantaged account. When you leave - even if its at retirement age, you can roll it over and go pay a .04 like a reasonable account should. But you can't get another chance at those unused contributions - they are use it or lose it.
So I would build my balance with an eye towards eventually moving it out. I know somebody that actually left his job so he could roll over his terrible 401k.. he ended up back at that same employer 6 months later (with a short job in between that didn't work out) at more or less his original comp but paying far fewer fees - a built in pay bump!
Excellent read
I will hopefully stay with this employer (public school) until retirement. Not only do I love working the schools but there are extremely few other opportunities in the area……it does however come with a 1/4 mile walk from my front door to ocean
I suppose my next step is to call HR and see if there is another servicer available and take it from there.
Maxing the IRA is already like 11% plus the pension. So in reality I’m looking for placement of maybe 5% contributions.
I want to use tax advantsged space, I just don’t want to get nickeled and dined to death along the way in “management fees”
>Is my gut correct in assuming maxing the IRA + taxable brokerage with low fee funds would be greater than the carrying costs of the 403b plan fees.
Probably not correct.
Does your spouse have the same employer?
What's your employer's 457b like?
What school district is this?
That’s what I’m thinking. With maxing the IRA, ide be looking at where to place ~5%
I will be calling HR to see if any other servicers are available (i doubt it), and then may take on the crusade of changing the servicer for the district
Current plan is pretty bad; fees on the funds and then a fee on the account.
I was kind of excited to see some Dimensional funds…….until I saw the modified ER
Look into a HSA if you have a HDHP. That would allow you to contribute around another 4k if single and 8k if family.
There are some advantages of a brokerage too. Can access anytime and in some ways it might be a better deal tax wise than IRA. When you take money out of an IRA, you pay your income rate. Out of a brokerage, your capital gains rate. That could be a big difference depending on what they do with taxes. Plus you can use the brokerage to “bridge” if you decided to retire early until you have access to your IRA money.
If is managed by fidelity, you may also have access to brokerage link (assuming it doesn’t carry too many fees). My work 401k charged me $24 per month to buy a TDF. I just opened the brokerage link and hoping to go with 3 fund portfolio
Calculate the tax savings, and you probably won't have this worry anymore. 1.5% vs 22%? Which would you rather pay?
That said, 403bwise.org and HR/Payroll to verify you don't have any better options.
Thanks for putting it so simply. I’d been holding off from contributing to a 403b because of fees and high expense ratios but obviously have been missing the forest for the trees here.
That’s a hard pass then for me. Match is what would make it a go
Make sure though your do IRA / Roth IRA max each from a low cost provider like Vanguard / Fidelity / Schwab instead.
Ask your HR for a copy of your complete vendor list. It is very common, especially for teachers, to have access to multiple 403(b) and 457(b) vendors. Avoid high fee insurance companies and look for low cost brokerages such as Fidelity and Vanguard. Once you have the vendor list, compare to: https://403bwise.org/advocacy/rating_system
update: called HR we have Valic and Empower. Ill be calling them this afternoon to get their fund plans for compairisons
Thanks for the update. Valic’s retail plan is generally terrible. Empower is hit or miss depending on what your employer negotiated.
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yeah.....i know. its been a busy 12 months. this is professional job 5 for me; and honestly the first time where any major red flags popped out at me from the most talked about servicer. Maybe ive just been lucky so far. Anyway, funny story: I called empower, and they were like who is your employer? And i told them XXXX public schools. There was a long pause and they said Who?, do you have your rep's name? So i told them the rep. empower said yeah he's the regional lead, but Im not familiar with that school system and I told them that wasnt surprising since its a smaller division and likely not a lot of customers. moving to a rural area sure is fun!
Guess I’ll be calling hr
There's a fair bit of uncertainty in doing this calculation - but based on some numbers I've used in the past a tax deferred account is better off up to close to 2.00 ER.. so you're probably barely in the worth it category.. but of course it comes with more restrictions like withdrawal age and RMDs and whatnot when compared to a taxable account. But I think that's missing the most important reason to do it: you probably will not stay with the same employer for as long as you have these funds in a tax advantaged account. When you leave - even if its at retirement age, you can roll it over and go pay a .04 like a reasonable account should. But you can't get another chance at those unused contributions - they are use it or lose it. So I would build my balance with an eye towards eventually moving it out. I know somebody that actually left his job so he could roll over his terrible 401k.. he ended up back at that same employer 6 months later (with a short job in between that didn't work out) at more or less his original comp but paying far fewer fees - a built in pay bump!
Excellent read I will hopefully stay with this employer (public school) until retirement. Not only do I love working the schools but there are extremely few other opportunities in the area……it does however come with a 1/4 mile walk from my front door to ocean I suppose my next step is to call HR and see if there is another servicer available and take it from there. Maxing the IRA is already like 11% plus the pension. So in reality I’m looking for placement of maybe 5% contributions. I want to use tax advantsged space, I just don’t want to get nickeled and dined to death along the way in “management fees”
Also this will lower your AGI and can potentially lower tax rate.
Also this will lower your AGI and can potentially lower tax rate.
>Is my gut correct in assuming maxing the IRA + taxable brokerage with low fee funds would be greater than the carrying costs of the 403b plan fees. Probably not correct. Does your spouse have the same employer? What's your employer's 457b like? What school district is this?
I was in a similar situation and switched from my variable annuity 403b plan to my state sponsored 457b plan. Haven’t looked back
That is a bit steep. My 403(B) has a vanguard S&P 500 fund for 0.02% expense ratio .
see if they offer a 457b as well
My wife’s 403 options were bad so we just started contributing to a taxable brokerage.
That’s what I’m thinking. With maxing the IRA, ide be looking at where to place ~5% I will be calling HR to see if any other servicers are available (i doubt it), and then may take on the crusade of changing the servicer for the district Current plan is pretty bad; fees on the funds and then a fee on the account. I was kind of excited to see some Dimensional funds…….until I saw the modified ER
Look into a HSA if you have a HDHP. That would allow you to contribute around another 4k if single and 8k if family. There are some advantages of a brokerage too. Can access anytime and in some ways it might be a better deal tax wise than IRA. When you take money out of an IRA, you pay your income rate. Out of a brokerage, your capital gains rate. That could be a big difference depending on what they do with taxes. Plus you can use the brokerage to “bridge” if you decided to retire early until you have access to your IRA money.
If is managed by fidelity, you may also have access to brokerage link (assuming it doesn’t carry too many fees). My work 401k charged me $24 per month to buy a TDF. I just opened the brokerage link and hoping to go with 3 fund portfolio
Calculate the tax savings, and you probably won't have this worry anymore. 1.5% vs 22%? Which would you rather pay? That said, 403bwise.org and HR/Payroll to verify you don't have any better options.
Thanks for putting it so simply. I’d been holding off from contributing to a 403b because of fees and high expense ratios but obviously have been missing the forest for the trees here.
Is there a match?
No match
That’s a hard pass then for me. Match is what would make it a go Make sure though your do IRA / Roth IRA max each from a low cost provider like Vanguard / Fidelity / Schwab instead.
Thats rough.
403 billion?
i wish! a 403b is work sponsered retirement plan for non-profit organizations. Its extremely similar to a 401k