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  1. I suppose it is possible that your payroll office is screwing this up. One would expect them to know how to do it correctly though as this is pretty basic stuff.
  2. You should be paying no taxes on any money you are putting into a regular 403(b) account but then you will pay regular income taxes on the withdrawals. If you have a 403(b) Roth account then you are depositing money that has already been taxed but the withdrawals are tax free. Under no circumstances should you be paying taxes twice on any kind of retirement account. If you think that is happening then either (1) something is really wrong with your account, or (2) you are mistaken about the taxes.
  3. The usual suspects were by my school district this week hawking their fee-laden annuity products and I became aware once again how few teachers around here are actually aware of their options. Here in Texas we have a wide choice of 403(b) providers including Vanguard and Fidelity. The official list of venders is kept on the TRS web site here: http://www.trs.state.tx.us/global.jsp?page_id=/403b/certified_list What happens is that many teachers get roped in by some advisor they met at "free" meeting or that they know socially from their church. These advisors work for one of the many annuity companies and will rope you into high-fee products that are not to your advantage. They all have the paperwork and will happily help you with it. And you never find out that you have better options. But you do have the alternative of using Vanguard on your own. It is unlikely that your district or Vanguard will actually know how to do this but it is extremely simple and is a 2-step process to open your own 403(b) with Vanguard that will have zero fees other than the underlying expense ratios of the mutual funds themselves. Step 1: Open your own individual 403(b) account with Vanguard. There is a package of .pdf forms you need to download and submit to Vanguard. It is their small business department that handles it. The forms are kind of hidden on their web site. Once you do this you will have a 403(b) account number with Vanguard that is available for depositing funds into. You only need to submit the employee forms, not the employer forms. Step 2: Complete a salary reduction agreement with your school district. This is just a simple 1-page form that tells your payroll administrator to deduct ######-dollars and deposit it into your Vanguard 403(b) account. You can't complete the salary reduction agreement until you have an account opened with Vanguard into which the funds will be deposited. Once you do both of these steps you will now have your own 403(b) account with Vanguard that will have the full range of Vanguard funds available and no administrative fees at all. The only tiny cost you will see is that you will not have Vanguard Admiral Shares available from within a 403(b) plan no matter what the account size. You will be restricted to Vanguard Investor shares which have a slightly higher expense ratio but they are still tiny compared to most other venders. This is a legal restriction because Vanguard is prohibited by law from offering better deals to larger shareholders within 403(b) and 401(k) plans. The boss doesn't get a better deal than the secretary, for example. It is astonishing to me how many teachers at my district who have 403(b) plans are in high-fee annuity products and don't even know they have low cost options from Vanguard and Fidelity. I assume opening a 403(b) with Fidelity works the same as Vanguard but I have no experience with that so I can't comment.
  4. My wife's employer uses them for both her 403b plan and her profit sharing plan. They are mediocre at best with high fees and a web site that the 1990s want back. First her 403b plan. They have a sliding fee structure based on the plan size. It was 1.3% on top of the underlying fund fees until her plan size reached $8 million and then dropped to 0.95% when the plan crossed that threshold. The CFO in her organization (a small regional health clinic network) seems to have picked the suite of available funds which is a fairly random mix of actively managed funds from American Funds and T Rowe Price and some other oddball selections but they do have vanguard total stock index and total international index at the request of my wife and that is where we put everythig. Her profit sharing plan is a bit different. It has an annuity wrapper so the fund prices don't match the actual fund prices and it is another random mix of actively managed funds. The least bad option she has is Vanguard Wellington so she is 100% in that. Their fee structure is very obtuse but from what I have been able to discern, it is about 0.70% on top of the underlying fund fees but depends on the fund. The expensive actively managed funds have lower fees from standard probably due to some sort of kickback scheme. But Wellington still comes out cheapest overall. I wish she had a better choice but she doesn't. I'm on my iPad and if I open a new tab to look up more specifics I may lose what I have just typed so let me know if you have more specific questions and I can look them up. I can pull up her actual plan documents if you want more fee details. I get the impression that the CFO at her organization basically picked the suite of fund options so that is probably something that is up to each individual plan administrator not the Standard.
  5. i would roll everything over into a Vanguard IRA. As Tony mentioned, even if you have the best Vanguard 403(b) available (which we teachers do have here in Texas by the way) you are still paying higher fees than you would with an IRA. Vanguard does not make its lowest fee Admiral shares available to 401(k) and 403(b) accounts that are managed by Vanguard. They charge the higher fee investor shares as a way of recouping the administrative costs that Vanguard incurs by managing the accounts. Some non-Vanguard 403(b) accounts do have Vanguard admiral shares available but then you are paying management fees to some 3rd party. My wife, for example, holds Vanguard Wellington Admiral shares in her 403(b) administered by Standard Insurance but is forced to pay an outrageous 1.25% management fee for the privilege. Point is, unless you have some extraordinary plan such as the Federal TSP plan, you will amost certainly reduce your fees and increase your flexibilty by rolling everything into Vanguard IRA.
  6. A couple of points on the origional question. 1. One benefit of a Roth IRA or Roth 403(b) is that you can contribute more dollars to it than a traditional IRA or 403(b). The dollar limits are, of course, the same, but $17,000 of pre-tax dollars is less than $17,000 of post-tax dollars. So if you are trying to maximize your tax advantaged space then the Roth gives you more. 2. One disadvantage of a Roth is that you are paying taxes on it at your marginal tax rate whereas the traditional 403(b) will eventually get taxed at your effective tax rate. I'll give my own situation as an example. My wife is a physician and I am a teacher. We both have traditional 403(b) accounts as neither of our employers offer a Roth 403(b). We are also in the 28% tax bracket. This means that every dollar that we contribute to our 403(b) accounts gains us a 28 cent tax reduction. However in the future when we are retired and withdrawing our 403(b) funds we'll be paying taxes on our effective tax rate. The first ######-dollars at zero percent, the next ######-dollars at 10% and so on. Roughly speaking, our current effective tax rate is about 10% of our gross due to all our deductions (for kids, retirement funds, HSA, home mortgage etc etc.). So if we were retired and all other things were equal we'd only be paying 10% on your 403(b) withdrawals. In any event, definitely do the Roth rollover on your traditional IRA funds. Absolutely no reason not to do this.
  7. Are you still with the same employer that you started the first account with? I'm surprised that you can't transfer the money into your new account. There is certainly no Federal law that prevents it. And most 403b plans allow incoming transfers of other 403b and IRA funds. Something sounds wrong about your description. I think you need to ask more questions. Have you looked into whether it is possible to transfer your first 403b into a traditional IRA with someone like Vanguard? That would put the money into your control. You'd still have the penalties for early withdrawal but at least you'd be in control of your money and would have lower fees.
  8. Hi guys: My school district also lets me self-direct. We use First Financial http://www.ffga.com/ and I had to find the same backdoor way to self-direct to a Vanguard 403(b). Far as I can tell, all First Financial is doing is taking my payroll deduction from my employer and forwarding it directly to Vanguard with no fees taken out because the full deposits keep showing up in my Vanguard portfolio on the Vanguard web site. As for the previous issue of rolling the old Vanguard into a 403(b). There are two issues that I have not seen mentioned yet. First, one issue that may or may not be relevant to this decision is the backdoor Roth IRA. This is only an issue if your joint income exceeds the limit for making Roth IRA contributions. If your income is over the limit for Roth contributions there is still a backdoor way to fund a Roth and that is by opening a non-deductible traditional IRA and then rolling it over to a Roth. But this only works if you have no other IRAs, otherwise you pay tax on any capital gains. It's complicated but explained here http://thefinancebuff.com/the-backdoor-roth-ira-a-complete-how-to.html If this is an issue for you then you definitely want to leave the money in a 403(b) because that will not affect your ability to do a backdoor Roth IRA. However if you are not near the Roth income limit then there's no worry. The second issue has to do with Admiral shares and fees. Admiral Shares are not available within Vanguard 403(b) plans no matter what your 403(b) account balance. I guess this is Vanguard's way of capturing the 403(b) management fee. However Admiral shares are available in IRA accounts. So if you aren't anywhere near the Roth income limit and have enough in the 403(b) to benefit from the lower Admiral share fees then that would be one reason to roll the old 403(b) into an IRA.
  9. To follow-up on my previous post. One thing I really don't understand about many public pension programs is why they don't pay into social security. Perhaps when social security was first starting up a half century ago there were good arguments about why public employees might want to remain in separate pension programs outside of social security. But those days are long gone. Here in 2010 there seems to be compelling arguments for both the employers (states and school districts) and the employees to transition into social security. If states transitioned all of their new employees into a hybrid system in which 1/2 of the pension remained under the old system and the other 1/2 was social security then they would instantly cut their future obligations in half for all new employees. And today's workers are much more mobile than in generations past. Most young workers starting out their careers today will be bouncing between a variety of jobs and possibly between a variety of states. They would be better served by the portability of social security. I'm not arguing for replacing public pensions with social security. Just that it would make sense to have public employees pay into social security and then into a smaller pension program that would supplement social security to the extent necessary to raise their total pension distributions back to where it would have been in the first place.
  10. Problem is we are in the 28% tax bracket so it's hard to see how forgoing the tax advantages of a 403(b) would ever pencil out for retirement savings, even at 1%+ fees. That is the conundrum. They have you as a captive audience and know it. I have resigned myself to the fact that we'll just have to eat the fees on my wife's 403(b). Be cool if I could get her to quit her job for 1 day every few years, roll all her funds into Vanguard, then start over again. But that's not going to happen. I do see fees coming down everywhere else in the financial world. Just not 403(b) plans. For example, 529 college savings plan fees have been coming down down down over the past year as consumers have the choice of hundreds of different plans to chose from. That's the value of a free market. I'm now paying 0.25% fees on my Vanguard 529 plans for my 3 daughters. That is the TOTAL fee including the ER of the underlying funds, not a fee on top of the fund fees. And these are small accounts that are individually managed. These fees are about 8x lower than in my wife's 403(b) plan. If Vanguard can do that for 529 plans then there is no reason why the same wouldn't be true of 403(b) plans. It's just that there is no competition for the consumer once a company locks into a plan.
  11. Of course every state and plan is going to be different. However the Federal government did this sort of conversion a couple decades ago. Under the old system called CRS all Federal employees had a single pension program that paid an inflation adjusted annuity upon retirement. Under the CRS system like many current teachers pensions, Federal employees did not pay into social security so the CRS pension was their only retirement. Under the new system called FERS Federal employees continue to have a defined benefit pension that is about 1/2 the size of the old CRS pension. To replace the other 1/2 of retirement income Federal employees now pay into social security and are also provided with a 403(b) type program called TSP which has an employer match of the first 5% of earnings. In the end, both CRS and FERS employees end up at about the same place if they make similar retirement savings over their careers, the new FERS program just requires that employees do a portion of the savings on their own through the TSP program. I believe that when the change happened, existing employees had the choice of staying with the old program or switching to the new program whereas all new employees only had the choice of the new program. For someone leaving Federal employment and then returning I'm not exactly sure how it worked. To me the current Federal program makes a lot of sense and should be the model for state pension programs around the country. I was a Federal employee for 10 years before going into teaching and I think the Federal program is MUCH superior to the Texas Teacher's Retirement System that I'm now a part of. It is also much superior for people who only work a portion of their careers in Federal service because they can maintain their TSP accounts and carry their social security wherever they go. That doesn't necessarily happen when one has a single pension from a single state.
  12. Luckily I have the option of using a directly administered 403(b) account with Vanguard so i don't have issues with fees or fund choices. My wife is not so lucky in her plans. She used to be able to use Vanguard directly but with the accounting IRS changes in 2009 she was forced to drop Vanguard and go with her employer's insurance company-based plan. I've been taking the time this Christmas to go through my wife's Profit Sharing and 403(b) account documents with a fine-tooth comb to try to discern and uncover all of the fees. Even though both accounts are administered through the same insurance company Standard Insurance (http://www3.standard.com/net/public/Individuals) the two plans have a completely different fee structure. Best as I can tell, her profit sharing plan is hitting her with annual fees of 0.45% and her 403(b) is hitting her with annual fees of 1.0% on top of her normal mutual fund ERs. I'm guessing the profit sharing plan fees are lower because they only have a single annual lump sum deposit to deal with for each employee determined by the employer whereas the 403(b) plan has bi-monthly payroll deposits and each employee can adjust the amount. But what do I know. I'm really curious to know how those fee amounts compare to industry averages. I have no idea whether they are high or low. Obviously they are a lot higher than the Vanguard fees I pay for my own self-administered Vanguard 403(b). I just don't know how they compare to the typical 403(b) or 401(k) plan. Here is the background that I have been able to uncover about the fees for each account. PROFIT SHARING PLAN Her profit sharing plan wraps a suite of mutual fund choices into an annuity in which the mutual funds are priced using "unit values" rather than their actual share prices. Deep inside the plan documents I finally uncovered the fee table. The plan manager assesses an annual financial services fee of 0.20% and a recordkeeping fee that ranges from 0.10 to 0.25 depending on the fund. It appears that some funds kick back money to the plan manager which are applied to reduce this fee. So the expensive actively managed funds have a fee in the 0.10% range while the vanguard index funds have the full 0.25% fee. And, of course, the normal mutual fund fees themselves are also imposed. In short, the fund manager imposes total annual fees that range from 0.30% to 0.45% on top of the mutual fund's normal ER. Of course the vanguard index options all get the 0.45% fee because Vanguard isn't kicking money back I guess. I see a variety of small fees showing up in her account history. Basically there are 2 separate fees assessed each quarter but I can't tell if these are the fees identified above or some additional fees. As the running account balances don't show up in the account history, only the transaction amounts, it's difficult to determine. 403(B) PLAN Her 403(b) plan has no defined fees anywhere in the plan document. The only place I could find fees mentioned is in this paragraph buried at the end of her plan document: However this account is administered differently from the profit sharing account even though both accounts are both managed by the same insurance company and can be viewed together on the company's web site. Instead of wrapping the funds into an annuity with a unit price, the actual daily fund prices are listed in the account balance and the fees show up as fees when I do an account history. It appears that there is a undefined "fees" that is taken out of the account balance like clockwork every 3 months that appears to be about equal to 0.25% of her account balance. It's hard to tell exactly because the balance isn't shown in the account history, only the deposits and fees. So I'm guessing that she is getting hit with annual fees of about 1.0% on top of the mutual fund ERs, which is more than double the fees that she is getting hit with in the profit sharing plan. Also, there are quarterly "earnings" deposits that show up in the account like clockwork every quarter on 3/26, 6/25, 9/25, and 12/23. It appears earnings deposits come out to about equal to 2.5% of the account balance as over the past 2 years they amount to almost exactly 2.5 times more than the fees. I'm guessing that these must be mutual fund dividends? Her entire account balance has been in Vanguard Total Stock Market (VTSMX) during this time so I'm not sure what kind of quarterly earnings that fund would be throwing off. Are those likely to be mutual fund dividends or something else? I didn't think they were paid quarterly. It is extremely difficult to get answers because the plan administrator at her employer is the CFO who is extremely busy and difficult to get answers from and there are no lower level employees who seem to know anything. My wife isn't interested in badgering him for answers as he is way above her on the food chain and generally a difficult person to deal with. And when I call the insurance company they say to talk to the plan administrator at her company. So it's an exercise in frustration trying to untangle all of this. So what do you folks with more experience in these things think. Is my wife getting screwed? Is her plan about average" Or does she actually have a decent plan? I have no way to know.
  13. Hello new invester: If you're still reading this forum. I strongly suggest you educate more about investing principles before making your decision. Learn about the principles of asset allocation. You are definitely on the right track with either Vanguard or T Rowe Price. They are both excellent fund companies with reasonable fees. My personal recommendation would be to go with Vanguard because their index funds have even lower fees than T Rowe and I am skeptical of the long-term benefits of actively managed funds. Everything I've read says that over the long term you are probably better off with a low fee suite of index funds with an asset allocation that is appropriate for your age and objectives. But some of my wife's IRAs are with T Rowe so obviously I think they are a good company and probably your best pick if you are looking for actively managed funds where highly paid managers pick which stocks to buy and sell. An excellent place to start would be a book like the The Boglehead's Guide to Investing which was written by several followers of John Bogle who was the founder of Vanguard Funds and perhaps the man who has done more for small investers in this country than any other single person. They have a slant towards low fee index funds such as Vanguard. But it's an excellent book to cover the basics of investing. Bottom line? Your success in investing will be governed primarily by: 1. Your asset allocation plan (i.e. what percentage large cap, small cap, international, and fixed income investments to have), 2. Starting early and investing regularly, and 3. Fees and expenses. Many beginning investors make the mistake of trying to pick the est funds and end up chasing performance rather than setting up a basic investment strategy and sticking with it.
  14. It sounds like Vanguard costs about $8,000 more per year. If you have $2,7000,000 invested, that $8,000 works out to a fee ratio of 0.29% if I'm doing my math right. That should give you a better comparison between Vanguard and Fidelity. Recognizing of course that its always better to pay the management fees separately rather than through a deduction in fund value so that you don't lose the compounded earnings on the amount paid in fees.
  15. My wife is a 3rd year resident who just this week signed a contract with her residency program to stay on in a 1/2 time clinician, 1/2 time faculty role. The program provides her with a good profit sharing package and an optional 403(b)(7) on top of that. They allow employes to pick any 403(b) plan they want but steer them towards Vanguard, T. Rowe Price or Fidelity if they don't have a preference or a clue. The program hires a fee-only advisor to come give group seminars to the different groups of employees. I just attended the session for doctors last night. He basically created a hyothetical young married doctor with 2 kids and then drew up a complete financial plan that included: 1. Profit sharing 2. Maximizing-out the 403(b) in an age-based Vanguard target retirement fund 3. Maximizing ROTH IRAs for both doctor and spouse 4. 529 plans for the kids at $750/mo per kid 5. Lots of term life and disability insurance 6. Charitable giving I was pretty impressed. No nonsense about variable annuities or load funds. Tonight's the second part of the seminar dealing with doctor-specific issues such as sheltering assets from liability and estate planning. I suspect that the program actually didn't have to hire this guy. I'm guessing he does these seminars for free. Because I think he probably generated a half dozen individual clients last night. I think that works out well for everyone. This doesn't directly address your question. But I think you would be hard pressed to give your folks a better option than Vanguard. I was a Federal employee for 15 years before leaving my job when we moved to Texas for my wife's residency. The Federal employees 403(b) plan is called the Thrift Savings Plan (TSP) and when I started they only had 3 fund options, a G Fund (Gvt securities) F Fund (Total Bond index) and C Fund (S&P 500 index) with ridiculously low fees at 0.06% per fund. Now they have added an S Fund (Wilshire 4500) and I Fund (Int'l index) and some lifestyle retirment funds that are age-based combinations of the 5 main funds. When I was younger I chafed at the lack of actively managed funds and the ability to play the market with narrow targeted funds. But after riding Janus funds into the ground in 2000 with my IRA money I now really see the wisdom of how the TSP program was set up and I think for 99% of employees it is really hard to do better than an age-appropriate allocation of low fee index funds for the long haul. Doctors who want to play the market will still have plenty of cash to goof around with in non-retirement funds and personal IRAs for that matter. But for the core retirement funds, all but the most obsessed investment junkies are probably better off with a Vanguard type age-based porfolio.
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