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EdLaFave

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  1. Got it. I don’t know how you’re defining “worth it”, but if it makes financial sense to put $1 in the tax advantages account then it makes sense to put the next dollar in too. I can’t think of a mathematical reason it would be worth it for 2k, but not 19k. If you’re saying it isn’t worth a person’s time to set up a 403b account and deal with AXA for such a small balance, then I guess that’s a judgement call. The size of the distributions are relative to the size of the account, which makes the absolute value of the distributions irrelevant. The only thing that’s relevant is the tax drag as a percentage of the principal. If the tax drag in a taxable account is just 0.05% of the balance each year then I’d gladly pay an extra 1% fee in year 1 to avoid a lifetime 0.05% fee. The break even point with those figures (and a 7% return before fees/tax drag) is 20 years. I don’t presume to know their tax situation. The tax drag will be less for low income folks. Of course an index fund will be more tax efficient than an actively managed fund. My primary point was just that a short time horizon with the current employer increases the viability of using their higher fee plan because you don’t have to pay the large fees for very long before you can rollover to a low cost tax advantaged account and avoid the potentially lifelong tax drag associated with a taxable account. I use taxable accounts heavily. Roughly 3/4 of my portfolio is in a taxable account.
  2. This is a false choice. Your friend can choose between the 403b (roth or traditional), an IRA (roth or traditional), and probably a 457b (roth or traditional). I'm not sure why people seem to only consider Roth IRAs, but please know the Traditional IRA is very much an option and often the preferable option. New York State has a very good 457b plan that has been discussed at length on this forums. What district? Most districts do not limit their available options to one plan, so I'll remain skeptical until I see that in writing from an official source. Your friend should prioritize maxing out the tax advantaged accounts that allow them to build a fully diversified portfolio at rock bottom prices. The fact that they plan to leave their employer soon means that even a high fee investment account becomes attractive because they only have to pay those fees for a short time before they can roll that account over to a new employer or to a rollover IRA at their preferred institution. One thing to research is if surrender fees still apply when doing a rollover after employment is terminated. The surrender fees definitely apply if you rollover to a different vendor while continuing employment. The opposite is true. Very rarely do you want to give up tax advantaged space and planning to be with your employer for a short amount of time only increases the viability of utilizing those accounts. Assuming they're already maxing out their other tax advantaged accounts then using a 403b becomes more attractive because they're only stuck with the high fees for a small amount of time. The alternative is putting the excess money in a taxable account where they won't be paying high fees, but they will be receiving taxable income forever and are therefore highly likely to owe tax on that income every single year in perpetuity. If that's the case then they should invest in the account that allows them to build a fully diversified portfolio at rock bottom costs. From the sounds of things that's the IRA (traditional or roth).
  3. EdLaFave

    Zero fee ETFs

    I felt that way until they opposed the fiduciary rule. I don’t have the data to demonstrate this, but with the plethora of funds they now have (sector funds being the biggest offender), they do seem to be drifting from the founding vision. Still, I think their company structure is the best out there, even if there are better funds at other institutions.
  4. I'm not sure, I was just going by the OP's words:
  5. 403b and 457b accounts are often available as either Roth or Traditional. 403b and 457b plans are not inherently in conflict with or the opposite of a “Roth.” In fact, there is no such thing as just a “Roth”. A tax advantaged account (401k, 403b, 457b, IRA, etc) can be either a Roth or a Traditional.
  6. Look, I love the bogleheads and I essentially have a two fund portfolio (domestic and international stock), but this is myth the bogleheads push. Do you get a perk from selling bonds during a crash to buy some stocks? Sure. Is it enough to compensate you for the underperformance of those bonds during the bull market leading up to the crash? No. Bonds will reduce your expected returns. They’re there to reduce volatility so you can sleep at night and so you don’t do something foolish like selling all your stocks at the bottom of a crash and buy back in after the recovery. If bonds had similar returns to stocks, but went up when stocks went down and vice versa, then you’d get that “rebalance bonus” that actually generates wealth. Unfortunately bonds don’t have enough upside to make this proposition worthwhile. Play with one of the portfolio visualizer sites to prove it to yourself. Set up a 20 year window and compare a 100% portfolio against a portfolio with bonds across any number of time frames and you’ll see what I mean. The bogleheads love to tilt, which is ironic because it runs against the ethos of not making bets on sectors of the market. Bogle spoke out against this. I agree with Bogle. However, if you’re going to do it, then pick a percentage to tilt and live with it for life. If you change that percentage over time then I fully expect you to underperform. I’m not trying to talk you out of To y’s suggestion. I am however telling you that you’re making a big mistake in your decision making process. Past performance doesn’t indicate future performance. That isn’t a disclaimer to cover some low probability event, it’s a reality. You should never invest in a portfolio because of past returns. If you want to do that then I can recommend an objectively awful portfolio that blew Tony’s out of the water for a specific time period. You should invest in a portfolio because it has rock bottom costs, is fully diversified, meets your desired risk profile, and you agree with philosophical.
  7. To decide between Roth and Traditional you have to understand the progressive nature of our tax code. Let's use the 2020 tax code for a hypothetical single person who has the most simplistic tax situation imaginable... The first $12,400 they earn is taxed at 0% due to the standard deduction. The next $9,875 they earn is taxed at 10% The next $30,250 they earn is taxed at 12% The next $45,400 they earn is taxed at 22% ...and so on until they reach the 37% tax bracket where every additional dollar is taxed at 37%. A lot of people incorrectly believe that if they're in the 22% bracket then all of their income is taxed at 22%. In reality, every dollar you earn has its own tax rate. Your effective tax rate is equal to your total tax paid divided by your total income. Your highest tax bracket is called your marginal tax rate. Traditional vs Roth Qualitative Explanation When you contribute to a Roth account those dollars are taxed first, which is based on your (high) marginal tax rate. When you eventually withdraw that money, no taxes will be owed since they were already paid. When you contribute to a Traditional account those dollars go into the account tax-free, which means you get to avoid that (high) marginal tax rate. When you eventually withdraw that money, it will be taxed, but it'll fill up your lower tax brackets before you get to your highest tax bracket. This is why the Traditional account is very likely to be superior for most folks in most situations. Traditional vs Roth Quantitative Explanation Just for fun let's put this into mathematical terms. Suppose you invest P dollars in each type of account for N years and you get an annualized 7% return: Traditional Value = $P * (1.07)^N * (1 - TaxRateInRetirement) Roth Value = $P * (1 - TaxRateWhileWorking) * (1.07)^N You can see there are common terms in those equations so let's get rid of them: Traditional Value = 1 - TaxRateInRetirement Roth Value = 1 - TaxRateWhileWorking We know the TaxRateWhileWorking is equal to your (high) marginal tax rate while you were working. We know your TaxRateInRetirement will be based on that money filling up the lower tax brackets during retirement. So if TaxRateInRetirement is less than your TaxRateWhileWorking then the traditional account will generate more value. What if my retirement income is greater than my income while working? First of all, if you fall into this case then you've got nothing to worry about in retirement, but it is true that a Roth may become more appealing since you'll find yourself in higher tax brackets in retirement. However, even in this case a 100% Traditional may still be better than 100% Roth because you'll get to fill up the lower tax brackets even if your marginal tax bracket is higher, which may make your effective tax rate lower with a Traditional than it is with a Roth. The most important thing to say about this case is that you made a big mistake while planning for retirement because you oversaved significantly. You would have been better of retiring earlier or spending more money during your working years. What if other income fills up my lower brackets during retirement? If you have social security income or income from a pension then that'll fill up your lower brackets first, making a Traditional less appealing. Notice that I didn't say it makes a Roth superior. The odds are the effective tax rate associated with your Traditional withdrawals will still be appreciably less than your marginal tax rate while working because you will likely still take advantage of some of the smaller tax brackets and your marginal tax rate in retirement likely won't be higher than your marginal tax rate while working anyways. This scenario just reduces the appeal of Traditional, it doesn't eliminate it. What about Roth conversions? Suppose you saved a bunch of money in a Traditional and when you retire you aren't taking social security or any other forced income like pensions. Well you can convert that traditional money to a Roth account, which means the first group of dollars won't be taxed at all, the next group of dollars will be taxed at the lowest rate, and so on. This is a best of both worlds scenario where you can avoid your (high) marginal tax rate while working and pay rock bottom tax rates to convert it to a Roth later in life. This increases the appeal of using Traditional accounts. What if tax rates change? I commonly see people destroy their portfolios by making decisions based on their personal politics. My advice to you is to simply not engage with this thought pattern at all. Taxes may go up when you retire or they may not. If you indulge in this scenario it is often the Liberals who are most apt to increase tax rates, but remember their philosophy is about raising taxes disproportionately for the wealthy. If you're wealthy you'll be fine regardless. If you're not wealthy, then even in this scenario (which may or may not come to pass) your taxes may not increase too much. Again, just don't even engage in this line of thinking. Nobody knows nothing as they say. My Thoughts I view this Traditional vs Roth discussion as an optimization that ultimately won't have a huge impact on you. If you haven't already figured out how to minimize your spending, maximize your saving, and reduce costs to as close to 0 as possible then you shouldn't even be thinking about Traditional vs Roth. However, if you begin to think about Traditional vs Roth just know that nobody can give you a definitive answer because it depends on future tax rates, market performance, when you'll die, when you'll take SS, if you have a pension, if your pension will be cut due to poor funding, and so on. Most people in most scenarios are probably better off using a Traditional account for the reasons described above. In an ideal world you'd invest exactly enough in a Traditional account such that every dollar you withdraw is taxed less than or equal to your marginal tax rate while earning that initial investment and every other dollar should go to a Roth account. Again, nobody can tell you that magical number because we can't see the future. Another rule of thumb, if you're in the beginning of your career and making almost nothing, but you'll quickly climb the income tax brackets (like a young doctor for instance) then a Roth is your friend early on...or if you're temporarily in a low income situation (maybe you got fired, maybe you took a couple years off to raise a kid, whatever) then a Roth may also be great for you. But generally, I think Traditional is best. If you want to address these unknowns by investing in both, that sounds reasonable to me too.
  8. EdLaFave

    Test

    Testing to see if I can refer to a variable named or use the word ation or . ...failed.
  9. Its behind a pay wall, if anybody wants to post the details, I'd love to read them.
  10. I've heard it all from Realtors over the years. Just remember that nobody can predict any market. Your agent is telling you to time the housing market. If you want to own a home (and there are lots of reasons not to) then find the home you want and buy it, that's my two cents. They're both super user friendly and we can guide you. I'd go with Fidelity because they're a little bit cheaper, but don't fret either way. I hope you're not talking about individual stocks. What you need is a total market index fund that, as the name implies, purchases all of the stocks. You don't do anything except keep investing money the moment you have disposable income (regardless of what is happening or not happening in the market, see my note on market timing above). You may want to read the Investing 101 page I wrote. If you can get money out of a retirement account to buy a house without paying some kind of fee then I don't know about it. Even if you can, I wouldn't want the hassle and for what? To avoid paying a few bucks on tax as you hold the money in a high interest savings account or a safe bond fund? I'm trying to simplify my life. If Fidelity is listed as a 403b provider, there is a very high chance they're an approved 457b provider as well. They're the best 457b in the game. It sounds like your so called advisor told you to put the money into the tax advantaged account because if you held it outside the account then they wouldn't get commission. Like I said, I don't know the exact rules, but I fully expect you'll pay some kind of fine or fee or interest to take that money out. If it were me, I'd start saving for my house outside of a tax advantaged account and I'd roll that tax advantaged money into a low cost vendor like Vanguard or Fidelity.
  11. I disagree with the advice about CalSTRS Pension. They add on an AUM fee that makes them more expensive than Vanguard and Fidelity, which are your two best options. Both Vanguard and Fidelity let you build a fully diversified portfolio for rock bottom costs. Fidelity is a bit cheaper, but some people like the Vanguard culture better. I'm not going to pick a side myself. I documented Vanguard here. I documented Fidelity here. Well I don't know what you mean by legit, but you can tally up the fees of the plan this person is trying to sell you, compare it to Vanguard or Fidelity, and you'll quickly conclude which is better.
  12. I don't have a definitive answer for this, I'd have to read the rules/regulations. However, I can say two things for sure: If they aren't allowing you to move the money out of Lincoln and into an approved 403b vendor, it violates the spirit of the rules if not the letter. If you terminate employment, you can move the money out of Lincoln, no need to wait for retirement.
  13. To decide between Roth and Traditional you have to understand the progressive nature of our tax code. Let's use the 2020 tax code for a hypothetical single person who has the most simplistic tax situation imaginable... The first $12,400 they earn is taxed at 0% due to the standard deduction. The next $9,875 they earn is taxed at 10% The next $30,250 they earn is taxed at 12% The next $45,400 they earn is taxed at 22% ...and so on until they reach the 37% tax bracket where every additional dollar is taxed at 37%. A lot of people incorrectly believe that if they're in the 22% bracket then all of their income is taxed at 22%. In reality, every dollar you earn has its own tax rate. Your effective tax rate is equal to your total tax paid divided by your total income. Your highest tax bracket is called your marginal tax rate. Traditional vs Roth Qualitative Explanation When you contribute to a Roth account those dollars are taxed first, which is based on your (high) marginal tax rate. When you eventually withdraw that money, no taxes will be owed since they were already paid. When you contribute to a Traditional account those dollars go into the account tax-free, which means you get to avoid that (high) marginal tax rate. When you eventually withdraw that money, that money will be taxed but it'll fill up your lower tax brackets before you get to your highest tax bracket. This is why the Traditional account is very likely to be superior for most folks in most situations. Traditional vs Roth Quantitative Explanation Just for fun let's put this into mathematical terms. Suppose you invest $P dollars in each type of account for N years and you get an annualized 7% return: Traditional Value = $P * (1.07)^N * (1 - TaxRateInRetirement) Roth Value = $P * (1 - TaxRateWhileWorking) * (1.07)^N You can see there are common terms in those equations so let's get rid of them: Traditional Value = 1 - TaxRateInRetirement Roth Value = 1 - TaxRateWhileWorking We know the TaxRateWhileWorking is equal to your (high) marginal tax rate while you were working. We know your TaxRateInRetirement will be based on that money filling up the lower tax brackets during retirement. So if TaxRateInRetirement is less than your TaxRateWhileWorking then the traditional account will generate more value. What if my retirement income is greater than my income while working? First of all, if you fall into this case then you've got nothing to worry about in retirement, but it is true that a Roth may become more appealing since you'll find yourself in higher tax brackets in retirement. However, even in this case a 100% Traditional may still be better than 100% Roth because you'll get to fill up the lower tax brackets even if your marginal tax bracket is higher. The most important thing to say about this case is that you made a big mistake while planning for retirement because you oversaved significantly. You would have been better of retiring earlier or spending more money during your working years. What if other income fills up my lower brackets during retirement? If you have social security income or income from a pension then that'll fill up your lower brackets first, making a Traditional less appealing. Notice that I didn't say it makes a Roth superior. The odds are the effective tax rate associated with your Traditional withdrawals will still be appreciably less than your marginal tax rate while working because you will likely still take advantage of some of the smaller tax brackets and your marginal tax rate in retirement likely won't be higher than your marginal tax rate while working anyways. This scenario just reduces the appeal of Traditional, it doesn't eliminate it. What about Roth conversions? Suppose you saved a bunch of money in a Traditional and when you retire you aren't taking social security or any other forced income like pensions. Well you can convert that traditional money to a Roth account, which means the first group of dollars won't be taxed at all, the next group of dollars will be taxed at the lowest rate, and so on. This is a best of both worlds scenario, where you can avoid your (high) marginal tax rate while working and pay rock bottom tax rates to convert it to a Roth later in life. This increases the appeal of using Traditional accounts. What if tax rates change? I commonly see people destroy their portfolios by making decisions based on their personal politics. My advice to you is to simply not engage with this thought pattern at all. Taxes may go up when you retire or they may not. If you indulge in this scenario it is often the Liberals who are most apt to increase tax rates, but remember their philosophy is about raising taxes disproportionately for the wealthy. If you're wealthy you'll be fine regardless. If you're not wealthy, then even in this scenario (which may or may not come to pass) your taxes may not increase too much. Again, just don't even engage in this line of thinking. Nobody knows nothing as they say. My Thoughts I view this Traditional vs Roth discussion as an optimization that ultimately won't have a huge impact on you. If you haven't already figured out how to minimize your spending, maximize your saving, and reduce costs to as close to 0 as possible then you shouldn't even be thinking about Traditional vs Roth. However, if you begin to think about Traditional vs Roth just know that nobody can give you a definitive answer because it depends on future tax rates, market performance, when you'll die, when you'll take SS, if you have a pension, if your pension will be cut due to poor funding, and so on. Most people in most scenarios are probably better off using a Traditional account for the reasons described above. In an ideal world you'd invest exactly enough in a Traditional account such that every dollar you withdraw is taxed less than or equal to your marginal tax rate while earning that initial investment and every other dollar should go to a Roth account. Again, nobody can tell you that magical number because we can't see the future. Another rule of thumb, if you're in the beginning of your career and making almost nothing, but you'll quickly climb the income tax brackets (like a young doctor for instance) then a Roth is your friend early on...or if you're temporarily in a low income situation (maybe you got fired, maybe you took a couple years off to raise a kid, whatever) then a Roth may also be great for you. But generally, I think Traditional is best. If you want to address these unknowns by investing in both, that sounds reasonable to me too.
  14. Security Benefit's NEA DirectInvest is clearly your best plan. I documented the fees and how to build a fully diversified portfolio with the funds they offer, check that out here. Although Aspire is a plan worth using for those without better options, you clearly have better options. I documented the Aspire plan here. That is an actively managed fund that charges 0.75% per year, which is expensive. You can get the index variant of the 2045 target date fund for 0.12% per year, which is an 84% reduction in fees. Alternatively you could use the following three funds to build an equivalent portfolio and pay even less in fees: FZROX (total domestic stock) = 0.00% fee per year FZILX (total international stock) = 0.00% fee per year FXNAX (us bonds) = 0.025% fee per year In IRA has a $6,000 yearly contribution limit, $7,000 if you're 50 or above. Depending on what funds you buy in your IRA it'll be cheaper than the funds you buy in Security Benefit's NEA DirectInvest so putting all of your money into the IRA could make sense. On the other hand, Security Benefit's NEA DirectInvest waives their annual $35 fee if you exceed $50,000. Just a few minor details to be aware of. I'd recommend you read the Investing 101 page I wrote here. Then I'd recommend you: Identify your desired asset allocation. Rollover your expensive 403b into the lowest cost vendor available to you (Security Benefit's NEA DirectInvest). Buy the funds in the cheapest possible way across all of your accounts such that together they meet your desired asset allocation. Stick to your plan and invest every spare dollar the moment it becomes available regardless of any other factors (particularly whether the market is up, down, or sideways). I agree with this in general. However, I'd put this at the bottom of your priority list because: You presumably don't have money in a bad 457b at you current employer. You need to get the money out of your high fee 403b to a low cost 403b. You're not even maxing your IRA so you're a long way from needing another 19k in tax-advantaged investment space. Yup, incompetence and ignorance are more frequently the culprits compared to malevolence.
  15. You’re right. It looks like some companies have begun to allow it and others haven’t. Here is a fairly recent article about Fidelity moving in the right direction: https://www.cnbc.com/2020/01/31/fidelity-now-offers-fractional-investing-to-all-investors.html 😆 I suspect Vanguard would look a bit different today if somehow Bogle never left the helm.
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