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kgreen4me

457b Vendors vs 403b Vendors

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Vanguard just announced that all their Target Retirement funds’ expense ratio as of 2019 will drop to 0.09% due using Institutional rather than Investor class! Hooray! This was on ScottyD’s website. http://teachersadvocate.blogspot.com

I agree with Tony that a target retirement fund is all you need to get maximum diversification of all US and International stocks and bonds. And it rebalances for you when there is changes within the fund. It really makes it easy once you’ve picked your stock/bond ratio, which you can use to pick the fund (rather than using your retirement date to pick the fund). Because the 403b (and 457 and IRA) are tax advantaged, there is no tax consequence to making changes in the future. If you later decide that you are more conservative, you can change funds to reflect that change. Or if you decide to lower fees a bit and go with the 3 funds that Tony mentioned, you can do that, no problem.

Kgreen4me, do you have an IRA, either traditional or Roth, and if so, what company is it with? Do you any 403b accounts? If so are they with your current district or a previous one? If you give us this information, it will help us make suggestions.

Do you have an idea of about how much you can contribute to a 403b and/or a 457? Because you are over 50, you can contribute an additional “catchup” of $6000 to the basic $18,500 (for 2018—I’m not sure if it’s the same for 2019, or going up to $19,000).

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2 hours ago, krow36 said:

Vanguard just announced that all their Target Retirement funds’ expense ratio as of 2019 will drop to 0.09% due using Institutional rather than Investor class! Hooray! This was on ScottD’s website. http://teachersadvocate.blogspot.com

 

This is good news because some lowest fee possible advocates here often complained about paying a bit more for target funds than straight- on index funds. Keep in mind though its a good deal even at a slightly higher expense ratio because everything is done for you internally which makes it worth it.  The lower fee now makes them an even better go to option.

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Krow36 & Tony -  I do have a small traditional IRA with US Bancorp and a 401K with Empower through my previous employer.  I read that leaving the 401K with your previous employer can be the way to go.  Is that a bad idea or are there specifics that I should know before making that decision?

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Tony - I am unsure about the Roth 403b option.  I feel like I can contribute more to a regular 403b now since the net amount of my check won't take the full hit.  And I'm pretty sure that I will be in a much lower tax bracket when I retire - unless I get married. Does that sound like a solid thought process - or should I be looking at it differently?  I do see the value in the Roth 403b since the earnings aren't taxed when withdrawn (given the current tax laws) and that withdrawals from a Roth 403b can be used to keep me in a lower tax bracket if need be.  Do I understand that advantages correctly?  

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KGreene4me

As you know having multiple accounts can be confusing and actually hurt your performance.  If you no longer work where those accounts were accumulated, I would transfer them to a traditional IRA with Vanguard.  Actually, the IRA can be transferred regardless. If you decide to open a 403b account in Vanguard Target retirement 2525 than I would also put your other two accounts in the same fund even though they will have to be put in a traditional IRA instead of   the 403B. Vanguard can help you do all of this if you call them. The 403b will have to go through your employer but not the Traditional IRA. Newport Group deals with the Vanguard 403b while the traditional account is dealt with directly at Vanguard.

I think it makes great sense to consolidate your money under one umbrella and the same fund for simplicity's sake but so you can keep your allocation constant going forward since Vanguard Target Fund allocates for you. Plus the fees at Vanguard are likely to be lower. Plus you can then see and manage your accounts easily online at Vanguard. I bet Vanguard charges lower fees than your other two holdings.

In Terms of Tax Sheltered vs Roth, it comes down to whether you want to pay the taxes now or later. There are advantages to pursuing both methods and that is why I own both Roth and tax-sheltered accounts. Beware-if you transfer your money to a Roth from a tax-advantaged account you will be taxed so don't do that.

I hope this makes sense. I would never give advice I would not follow myself. In fact, I have consolidated all my holdings with Vanguard and it has made my life so much easier than have funds here and funds there. It's almost like owning too many credit cards when one will do just fine and is accepted everywhere. 

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P.S. I hope I didn't confuse you with so much info. I try to be simplistic but as you know the financial industry likes to make things complicated and confusing. Add the government's laws and legislation and you have a really big pot of messed up stew.

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4 hours ago, kgreen4me said:

Krow36 & Tony -  I do have a small traditional IRA with US Bancorp and a 401K with Empower through my previous employer.  I read that leaving the 401K with your previous employer can be the way to go.  Is that a bad idea or are there specifics that I should know before making that decision?

The traditional IRA with US Bancorp is very likely subject to unnecessary high fees. I would move it to Vanguard where the fees are very likely a tenth as high. 

Empower's relationship with your old 401k is similar to Voya and the OR State 457. Empower is a subsidiary of a large insurance company. The organization hires Empower to be the record keeper and administrator, but the organization can determine the selection and fees of the offerings. If the fees (both expense ratios and admin fees) of the 401k are significantly higher than those of a Vanguard IRA (which is likely), then keeping the 401k is not a good idea. There may be a maintenance fee for the inactive 401k. Also the 401k may not offer low-cost index funds. If you moved the 401k to an IRA it would be labelled a "rollover IRA" which just means that the IRA was previously an employer based retirement account. I have read that 401k accounts have more protection from creditors than do IRAs. 

As Tony mentions, it is a good idea to simplify your various accounts with a single provider, if possible. The decision to move your tIRA and 401k can be put off and dealt with after you've established your 403b and are making contributions to it. Are you planning to make contributions for 2018? I think your understanding of traditional vs Roth is correct. I would go ahead and start with traditional. You can always change it some of each, or all Roth. 

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Just to minimize any confusion I may have caused, a rollover IRA is the same as a traditional IRA except that only funds rolled over from a previous retirement plan are held in the account supposedly. Otherwise zero difference.  In my Vanguard accounts even though I rolled over assets from my previous 457b plan while employed, the money is labeled as a traditional IRA. I just checked. So I guess the terms traditional IRA and rollover IRA are used for the sake of clarity since they are treated the same by IRS.

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After retirement, most folks roll over their employer based retirement plans to IRAs. Both Tony and I did, for reduced fees, for better fund selection and for convenience. Doing it a few years before retirement also makes sense. Can you tell us what you've read that said that leaving in the employer retirement is the way to go? 

It just occurred  to me that you may have read about horror stories where conflicted salespersons try to get folks to roll over their 401k etc. accounts into expensive, inappropriate accounts such as annuities. This does happen all too often, alas. Doing a rollover to an IRA at a low cost vendor such as Vanguard, Fidelity or Schwab is a different story. Rolling it over to a bank or to a for-profit brokerage firm such as Edward Jones would be a costly mistake in my opinion.  

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54 minutes ago, krow36 said:

Doing a rollover to an IRA at a low cost vendor such as Vanguard, Fidelity or Schwab 

It's a no-brainer and the smart thing to do.  Too many folks out there commissioned or otherwise give wrong or prejudiced information. I've heard folks say the most darn things about investments. I have too heard mentioned that you should leave money in your past 401k/403b in the account. If the fees are high and choices poor as they often are, it definitely NOT the way to go. Always rollover that money to a better low-cost choice. Rolling it all over to Vanguard is the logical  smart choice.

 

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On 10/24/2018 at 10:00 AM, tony said:

If you decide to open a 403b account in Vanguard Target retirement 2525 than I would also put your other two accounts in the same fund even though they will have to be put in atraditional IRA instead of   the 403B.

Tony - I was just trying to find and learn about the 2525 target plan that you mentioned with Vanguard and I'm not finding it.  I did find the 2030 plan though.  Is that the same thing?

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If you click on any of the target retirement funds on the Vanguard link Tony provided, you'll get to the details. The 2025 fund is the "5 years to retirement".

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Here is the direct link: . Scroll to the bottom of the page for specific 2025 info. https://investor.vanguard.com/mutual-funds/profile/VTTVX

Actually,  you can pick any year fund you want. But be advised the more you go forward in the date the more aggressive the fund mix starts out. I think for you I would stick with 2025 because the market is rather choppy at the moment. 2025 has a fairly conservative mix of Stocks/Bonds.  Actually, it has more stocks than I thought it would. I don't know how much you have saved up but if you are playing catch up the next few years before you decide to retire, I would save as much as you possibly think you can and then some more. As Krow pointed out at your age you can invest more than the limits. Its called a catch-up provision. Make sure you visit the 403b home page. Dan Otter has many articles on investing and types of investing. Also, you might consider buying two of his inexpensive books, Teach and Retire Rich is a great little book packed with teacher specific investment information. He also wrote a book called Financial Literacy For The Young Or Young At Heart which is also easy to understand.  I like things simple and not unnecessarily complicated and these books fit the bill.

 You can find the book info here https://403bwise.com/bookstore.   Keep in mind many of us here learned about investments by reading and unfortunately by making mistakes in the 403b world.  It's never too late to right your ship.

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