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Shannon

Seeking Financial Input 403 (b)/457/Roth

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Good Morning,

I would like any input in the best way to invest my $!! I am an educator and just opened a 403 (b) with Vanguard that I will start contributing starting next month. Come to find out my school district does offer a few 457 which I have attached. I was planning on getting Roth account with Vanguard as well? At this point, I have roughly $2,000 to invest a month. How would you allocate?

In addition, I have an account (457) that I inherited with the City of LA (Voya is the record keeper)  that has about $30,000 in it. I need to roll those fund over to my own account. Should I roll over into the 403b? Open a 457 (in addition to my 403b)? Roll to a Roth? 

Any input would be greatly appreciated. All this is very new to me! Trying to learn and figure all this out! Did I mention that I AM NOT a Math teacher!

~Shannon

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So if you have $24,000 per year to invest then:

  1. Put $5,500 in the Vanguard IRA.
  2. Put $18,500 in the Vanguard 403b.

In the meantime go ahead and convince your district to add a low cost 457b provider. I haven't taken the time to determine which of your 457b plans is the best, but they're not great I know that much.

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@EdLaFaveI will do that...I just opened the Vanguard ROTH IRA today and waiting for my account to be processed. Is there an "index" of some sort so they can choose for me? I wouldn't even know how to choose the funds?!

Should I roll over my $30,000 from the old 457 into the ROTH or 403b? Do you have any thoughts on that?

Thanks for all your insight with my posts-it has been very helpful!!

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Shannon

Congratulations for doing the right thing for yourself by picking one of the good guys.... Vanguard. Also I am impressed that you are putting a good amount away each month and year. That should bring you financial success if you keep it up!!.

The Three Funds that we recommend the most are   (Fidelity Or Vanguard)

Total Stock Market Index

Total International Stock Index

Total Bond Market  Index

Now a target fund would be a good choice because its made up of these funds. Simply pick the date of your planned retirement or close to it and invest in it and forget it. If you are the type of person who prefers the hands off approach, YOU CAN NOT BEAT A TARGET FUND!!  You can chose the same target fund you have in your 403b in your Roth IRA as well and you will be set.

Heres a link https://investor.vanguard.com/mutual-funds/target-retirement/#/

 

If you are still working I am not sure you can roll your 457b  money over to a 403b . Most likely though you can roll over your $30,000 over to a better choice on your 457b list. Also you cannot roll your money over to a Roth Ira from a 457b unless you are seperated from service/job. Even then you would have to pay taxes on the transfer because your 457b account is tax-deferred and your Roth account would not be.

Best to keep things simple. If no better choice is available in your 457b just leave the money where it is until you resign or retire from your current job although you could move the 457b money to Security Benefit Direct Invest( which I believe has some vanguard funds available) most likely at any time.

I hope I made myself clear. Its easy to make things confusing when dealing with this stuff. I think I gave you accurate info. If I didn't you and me both will hear from others.

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Tony, Shannan's $30k 457 account is with a previous employer, the City of Los Angeles. His current employer is Temple City School District. So he could roll it to a traditional IRA with no tax consequences. Or to a Roth IRA and have $30k added to his taxable income. I think Shannon should work to get a low-cost 457 vendor, as I discussed in Shannons' other thread. Rolling it to another 457 will keep that no penalty at distribution after quitting advantage. You never know when it might be handy. 

The Security Benefit NEA Direct Invest plan is only a 403b, not a 457. We need to take a look at what Shannon has in the 457 and their fees. As you say leaving it there may well be the best idea.

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@tony I will do the Target Fund! I am hands-off! Thanks for the input.

@tonyand Krow36--Yes, the $30,000 is with the City of LA (previous employer) that I have to dissolve in 5 years. I can work to get a low cost vendor, which I have some time. But if Temple City doesn't, then roll it into VG 403b or the expensive 457's that are offered to me?

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1 hour ago, Shannon said:

Is there an "index" of some sort so they can choose for me? I wouldn't even know how to choose the funds?!

You will get solid advice here and if you follow it blindly and with fidelity, you'll do great. However, if you understand the fundamentals you're more likely to stick with your plan (abandoning your plan is common and extraordinarily costly) and select the amount of risk that is right for you. You may want to read my Investing 101 page to get an understanding of fees, active vs index, asset allocation, three fund portfolio and an all-in-one fund portfolio.

To answer your question, based on the level of knowledge that I'm guessing you have, I think a Vanguard Target Date fund is most suitable for you. Just pick the fund with the date you plan to retire. For example, they have a 2060 fund. However, if you learn a little bit (it doesn't take a lot) then you may be better off saving on expenses and going with the 3 fund portfolio that Tony suggested VTSAX, VTIAX, and VBTLX (that is what I have).

1 hour ago, Shannon said:

Should I roll over my $30,000 from the old 457 into the ROTH or 403b? Do you have any thoughts on that?

I don't think you can roll a 457b into a 403b, but I might be wrong...google it.

I think you're using the term "ROTH" to refer to a Roth IRA, which is adding potential confusion here. When you open an account like an IRA, 403b, 457b, 401k, etc. you can often choose for it to be a Roth or a Traditional. With a Roth you're taxed on the money you earn based on the highest tax bracket you're in and then the money goes into the account, grows tax free, and is withdrawn tax free. With a Traditional you're not taxed on the money you earn and then the money goes into the account, grows tax free, and is taxed when you withdraw it allowing you to fill up the lower income brackets before you get to your top bracket.

If you were to roll a Traditional 457b into a Roth 457b then you'd generate an immediate tax bill for the year the conversion was done. I'm not sure if you even can roll a Roth into a Traditional...if you did I suppose the government would have to give you some kind of tax refund? If both accounts are the same type (Roth/Traditional) then there will be no tax bill for the conversion.

I think you can rollover a Traditional 457b into either a Roth/Traditional IRA or Roth/Traditional 457b as long as you no longer work for the employer where you acquired the original 457b. However, I believe there are extra restrictions for some 457bs (maybe governmental 457bs) when it comes to rollovers. So that is something to google.

Also as Krow has suggested, the withdrawal rules for a 457b are different than other account types like an IRA. That should be googled and considered.

Also, rolling a Traditional account into an IRA makes a fancy tax maneuver called the Backdoor Roth less valuable. This won't affect most people, but it is worth noting.

Personally, I have always rolled over old employer retirement accounts (like a 457b) to an IRA because the IRA was always significantly cheaper.

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@EdLaFaveI appreciate you responding and your links. I have checked them all out. Thank you..

I call Voya which has my 457 and they said it could be rolled over to my 403 b if VG accepts it. If not, she said I would have to create a traditional IRA for the 457 money because it already has been taxed. 

I also inquired about withdraws. With this account (457 inherited City of LA) I would be penalized if I made withdrawals...

Would it be best to put into a traditional IRA or in my 403 b (assuming VG accepts)?@edlafav@krow36@tony

BTW-You guys are super smart!!!

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3 minutes ago, Shannon said:

I call Voya which has my 457 and they said it could be rolled over to my 403 b if VG accepts it.

Awesome, thanks for teaching me that. You might want to google it to see if there are any implications of such a transfer.

4 minutes ago, Shannon said:

If not, she said I would have to create a traditional IRA for the 457 money because it already has been taxed. 

I think something might be incorrect here.

If the 457b has already been taxed that would mean it is a Roth. I think (not sure) you could put that into a Traditional IRA, but it certainly doesn't have to be. Most folks would roll it into a Roth for the same reason they originally put it into a Roth.

7 minutes ago, Shannon said:

I also inquired about withdraws. With this account (457 inherited City of LA) I would be penalized if I made withdrawals...

I don't believe this is accurate, but I may not fully understand the special cases your 457b may have.

Generally speaking, I think the following links support my skepticism:

https://money.cnn.com/retirement/guide/401k_457plans.moneymag/index4.htm

https://smartasset.com/retirement/what-is-a-457b-plan

https://www.bogleheads.org/wiki/457(b)

10 minutes ago, Shannon said:

Would it be best to put into a traditional IRA or in my 403 b

I think Krow has voiced support getting your district to add a low cost 457b (Fidelity) and then rolling the old 457b into that account so you could take advantage of the penalty free, early withdrawals (when you leave the district) and you can take advantage of the low fees.

That sounds totally reasonable to me. However, I'd point out that a 457b Fidelity account comes with a fixed yearly fee, which isn't charged for an IRA and I don't think Fidelity offers their 0% index funds in their 457b, which I think are available in their IRA accounts. So you will be paying a bit more in fees to maintain that fee-free early withdrawal perk.

The primary reason I'd withdraw money early is because of early retirement. In that case I think there are ways to get money out without paying the penalty. So I'm not sure how valuable that withdrawal perk is for me personally?

I think I'd probably roll it over to a Traditional IRA to get the absolute lowest fees possible and that is certainly what I'd do if I couldn't get a low cost 457b. If you can get a low cost 457b, I think either choice is fine.

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@EdLaFaveThank you so much for taking the time to reply with this wealth of information! It is so helpful! I am still learning!! Ok, I am taking all this in. I will see where I can get with the district 457...!! Fingers crossed!

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Am I correct in thinking this is an inherited 457 account? If so I don't think it can be rolled into a 403b account. It can be rolled into an IRA where it will be an inherited IRA. 

When you inherited the 457 2 years ago, you had a choice of (1) taking RMD’s based on your age, or (2) taking a full distribution by the end of the fifth year following the year in which your father died. You opted for the full distribution in 5 years and there’s 3 years left. Is this correct?

You have mentioned that the taxes have already been paid, so this must be a inherited Roth 457? This is a very critical bit of information!

Shannon, how much of the above is the case?  

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