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What To Do When Your 403B Has No "true" Self Direct Option? (A


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#1 JillDavis

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Posted 20 May 2017 - 01:16 PM

Hi there! So glad to have found this site. I was curious on your thoughts for what you did if your 403B doesn't have any "true" self direct plans. The cheapest option I have available I believe is Plan Member Services. It has a .35 AUM fee. This just really sucks! I love the low cost Vanguard options but tacking on these AUM fees just defeats the whole purpose! I guess the pretax benefits still might make it worth it. Just curious if I should max out my ROTH IRA first and then contribute to my 403b. I don't get any match with my 403B. 

 

Here are the other vendors provided to me:

 

- Valic

-American Century Investments

-AXA

-Plan Member Services (.35 AUM fee)

-Waddell and Reed

-Suncoast Trust and Investment Services (.9 AUM fee)



#2 krow36

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Posted 20 May 2017 - 02:15 PM

Yes, maxing out your Roth IRA at Vanguard, Fidelity or Schwab before contributing to the PlanMember 403b would be a good idea. If you can contribute more than 5.5k per year at this time, then PlanMember is your best choice and the 0.35% fee added to Vanguard's low ERs is still worth using. While you are contributing as much as possible to your deferred tax accounts, you can try to get your district to add Fidelity, Vanguard or Aspire to their 403b list.

 

What state are you in? Does your district have a list of possible 457 providers? Some states offer state-wide 457 plans that are excellent.  http://board.403bwis...?showtopic=6130



#3 JillDavis

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Posted 20 May 2017 - 06:23 PM

I was considering maxing out my 403B (up to the limit of 18K) to get all those pretax benefits, but not sure if that is the best idea since there is an .35 AUM charge. Yes, it definitely might be smart to max out the ROTH IRA first. I guess I wish there was a calculator that would tell me if it is best to max out the 403B FIRST (even with the AUM charge) and then do the Roth IRA or the other way around?

 

And thanks for the link on the 457 plans! I don't see Florida on there. :( I asked my employer (Florida Virtual School) and they said they don't offer a 457. :(



#4 EdLaFave

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Posted 20 May 2017 - 07:25 PM

Hi Jill, it sounds like you're maxing both so the order wouldn't matter. If that isn't the case then it sounds like you don't have access to a traditional IRA so I guess the question is if a Roth with low fees is better than a traditional with an extra 0.35% fee.

I don't know the answer to that but I remember coming across a spreadsheet on bogleheads.org that somebody created to compare Roth to traditional. You may be able to find that and tweak the calculations to make the traditional slightly more expensive?
Navigate and reform OCPS' 403b and 457b.

#5 krow36

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Posted 20 May 2017 - 07:52 PM

Let’s assume you are in the 15% income tax bracket, (filing Single: 9,325 to 37,950 or filing MFJ: 18,650 to 75,900 taxable income (line 43 of your 1040)). If you didn’t contribute the 18k to the 403b, you would pay 15% times 18k or $2,700 in income taxes. If you are in the 25% tax bracket, you’ll pay $4,500 more in tax if you don’t contribute. Does FL have state income tax? 

 

The PlanMember fee of 0.35% times 18k = .0035 times 18k or $63. I think there’s no question that you are better off deferring the income tax on the 18k and contributing to the Vanguard index funds using the PlanMember 403b .

 

Many 401k plans of for-profit businesses have ERs averaging over 0.75% and they are still worth using. Some advisors say that even if the ERs are as much as 1.5%, the plan is worth using, especially if the employee is in the higher tax brackets.

 

Because the ERs of an IRA (either traditional or Roth) are rockbottom at Vanguard or Fidelity, I would suggest contributing to that as a first priority. You have until tax day next year to contribute for 2017. If you can contribute 18k through salary reduction throughout the rest of this year, that's great!   



#6 JillDavis

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Posted 20 May 2017 - 08:49 PM

My husband and I are in the 25% tax bracket. (hubby makes six figures). No - Florida does not have state income tax.  And I hear you on the for-profit businesses - my husband's 401k options are terrible - even higher expense ratios. I guess it still bugs me to pay Plan Member Services .35 AUM fees to do NOTHING. I don't even get an advisor for that. It's the self direct option.

 

And I have always wondered that question - at what point, is a fund considered "worth using". This is more for my hubbies 401k options as his options have even higher fees. I know the most important things are looking at if the fund has beat the index, low turnover, and historically a good asset class. 

 

I do have to admit - I am excited at some of the funds that Plan Member Offers. I see a lot of low cost Vanguard funds which I can't get through my husband's employer so there is a positive. 

 

An even bigger positive would be to not have any AUM fees and do it direct through NEA, Vanguard, or Fidelity, but one step at a time, I guess! I am jealous of you that have those options! I guess next step would be for me to be an advocate. :)



#7 chaka_han

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Posted 20 May 2017 - 09:39 PM

Jill, I don't know if this will make you feel any better, but my understanding is that with the PlanMember account you will have access to Admiral funds from Vanguard. Those are at a lower expense ratio than the Institutional funds that you would have access to if your 403b was directly through Vanguard. For example, the Total Stock Admiral ER is .04, but the Institutional is .15. That extra .35 you are paying is actually only an extra .24 if you invest in this fund. In addition, in the Vanguard 403b there is a separate yearly charge for each fund that you want to put money into, so if you intend to use more than one fund in your account the difference between Vanguard and PlanMember gets smaller and smaller. (Although I may be wrong about some of this as I have not specifically looked at the Vanguard 403b in a while. It may have changed). I know that in the end, you are paying more than you would if you invested your money in a taxable account, but the benefits of the tax sheltering far surpass the cost of this plan. I know it is easy for me to say, but I hope you can be content (if not happy) by keeping site of the fact that while the PlanMember account is not perfect, it is reasonable, and it is far less expensive than what many many teachers (and private 401k) have available to them.

 

That being said, my first 5500 would go to either a traditional or Roth IRA at Vanguard. Then whatever additional money I can afford to put away would be placed in the PlanMember account.



#8 JillDavis

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Posted 20 May 2017 - 10:11 PM

Wow. That's true. I do get access to admiral shares and I do plan on using different funds as I am implementing Paul Merriman's Buy and Hold Strategy so this does make me feel better! Thank you! 



#9 sschullo

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Posted 21 May 2017 - 07:51 AM

Hi Jill, it sounds like you're maxing both so the order wouldn't matter. If that isn't the case then it sounds like you don't have access to a traditional IRA so I guess the question is if a Roth with low fees is better than a traditional with an extra 0.35% fee.

I don't know the answer to that but I remember coming across a spreadsheet on bogleheads.org that somebody created to compare Roth to traditional. You may be able to find that and tweak the calculations to make the traditional slightly more expensive?

 

https://www.calcxml.com/do/ret10 

 

https://docs.zoho.com/sheet/published.do?rid=hd3vb2398212216114641a411b243fd7a923a 


Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)


#10 EdLaFave

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Posted 21 May 2017 - 12:22 PM

I hear you on the for-profit businesses - my husband's 401k options are terrible - even higher expense ratios. I guess it still bugs me to pay Plan Member Services .35 AUM fees to do NOTHING.

 

I know the most important things are looking at if the fund has beat the index, low turnover, and historically a good asset class. 

 

An even bigger positive would be to not have any AUM fees and do it direct through NEA, Vanguard, or Fidelity, but one step at a time, I guess! I am jealous of you that have those options! I guess next step would be for me to be an advocate. :)

 

My 401k currently charges me 0.31% to buy domestic index funds (I max it out). My employer from 1.5 years ago charged me way more. I think it was more than 1% for a bond fund and even more for a stock fund. I didn't mind maxing it out to get 36k in tax advantaged space before quitting and rolling it over to a low cost IRA. Still, I did and continue to find the exploÌtation to be unacceptable.

 

My wife and I ask just one question when selecting 401k/403b/457b funds. Of the diversified funds which has the lowest ER? Then we use our taxable and IRA to fill in the gaps.

 

Some of the people who've been in this 403b/457b fight for a while probably roll their eyes a bit when I complain about a 0.35% fee. They've seen (and continue to see) fees as high as 4% so a 0.35% fee probably feels like success but I strongly prefer your stance. We shouldn't allow wildly unacceptable behavior (4% fee) to normalize unacceptable behavior (0.35% fee).

 

If you decide to advocate you're always welcome to attend OCPS board and/or union meetings and make the case with me...or if I can gather enough teachers for meetings/workshops you're always invited. Although, I don't know the first thing about Florida Virtual School I'd be happy to help with anything on that front as well.

 

This is what I've found about low cost vendors currently being used in various school districts in Florida...

  • NEA DirectInvest
    • 3 fund portfolio costs about 0.07% plus $35/year (if under $50k).
    • Their 1 fund option (target date) is very expensive, 1%+ territory.
  • Fidelity
    • 3 fund portfolio costs about 0.06% plus $25/year (can't be waived?).
    • Their 1 fund options (target date and fixed allocation) are expensive 0.53-0.78%.
  • Vanguard
    • 3 fund portfolio can't use admiral shares so it probably doesn't make sense.
    • Their 1 fund options (target date and fixed allocation) cost 0.12-0.16% plus $15/year for owning the 1 fund.
  • ASPire
    • 3 fund portfolio costs about 0.21% plus $40/year (can't be waived?).
    • Their 1 fund options (target date and life strategy funds) cost 0.27-0.31% plus the $40/year (can't be waived?).
  • PlanMember Direct
    • 3 fund portfolio costs about 0.41%.
    • Their 1 fund option (target date) is very expensive 1%+ territory.

Navigate and reform OCPS' 403b and 457b.

#11 krow36

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Posted 21 May 2017 - 01:08 PM

The Fidelity K-12 403b plan does have one good low-cost "1 fund option": Four-in-One Index fund (FFNOX) with an ER of 0.15%. It's AA is 85/15 stock/bond.



#12 EdLaFave

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Posted 21 May 2017 - 01:42 PM

Thanks, I missed that one. Sure would be nice if Fidelity gave you  a few allocations to choose from. At least 85/15 is appropriate for most "young" people.


Navigate and reform OCPS' 403b and 457b.

#13 JillDavis

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Posted 26 May 2017 - 02:35 PM

Ed - you are great and thank you for all your help! And thanks to everyone else too! 

 

On another note, I had my husband call up his 401k for his corporate job and his 401k is through Mass Mutual. I was holding my breath because I figured their charge would be crazy! But they told him there was no charge to use Mass Mutual?? What??! For example, one of the S&P indexes for his 401k has an ER of 0.22 so I guess that's truly the total ER?

 

 

My 403b as you know for Plan Member AUM charge is 0.35 for self direct option. Just trying to figure out how Mass Mutual is able to charge nothing???



#14 tony

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Posted 26 May 2017 - 04:59 PM

 

 

On another note, I had my husband call up his 401k for his corporate job and his 401k is through Mass Mutual. I was holding my breath because I figured their charge would be crazy! But they told him there was no charge to use Mass Mutual?? What??! For example, one of the S&P indexes for his 401k has an ER of 0.22 so I guess that's truly the total ER?

 

Hi Jill,

 

Chances are there is more to it than that. I posted these articles below earlier and you might give them a read. Chances are good that there may be a layer of fees that the person your husband talked to isn't even aware of. I would keep probing. I am not familiar with 401k plans because I have never owned one but I would dig much deeper. Its possible I guess that the ER of his fund is only O.22 but usually there are administrative  and other fees 

 

 

http://board.403bwis...wtopic=6473&hl=

 

 

http://board.403bwis...wtopic=6474&hl=



#15 krow36

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Posted 26 May 2017 - 09:28 PM

On another note, I had my husband call up his 401k for his corporate job and his 401k is through Mass Mutual. I was holding my breath because I figured their charge would be crazy! But they told him there was no charge to use Mass Mutual?? What??! For example, one of the S&P indexes for his 401k has an ER of 0.22 so I guess that's truly the total ER?

 

 

Mass Mutual's basic cost of their S&P 500 Index fund is no doubt less than 0.12%. Mass Mutual adds to that basic ER, depending on various factors. The R5 share class is next to the lowest but no doubt MM is still making money.

Share Class Ticker Gross Expense Ratio Net Expense Ratio

I................... MMIZX.......... 0.12%.............................. 0.12%

R5................ MIEZX.......... 0.22%.............................. 0.22%

SVC............. MMIEX.......... 0.37%............................. 0.37%

ADM............ MIEYX........... 0.47%............................. 0.47%

A.................. MMFFX......... 0.72%............................. 0.72%

R4................ MIEAX........... 0.62%............................. 0.62%

R3................ MMINX.......... 0.87%............................. 0.87%

http://wwwrs.massmut..._indexfund.html

 

Whether there's an additional fee to the 401k plan is a different question. His HR department should be able to provide a copy of the plan and all its fees.