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kansasteacher

New To Investing--Would Love Advice If You Have The Time!

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Hello! I have been reading through old posts on here for about a week--you guys are smart! I am in my 5th year of teaching and I would like to set up a retirement account with tax benefits on this end. I am 29 and I am currently fully funding a Roth IRA. I should be able to do that for at least the next 8 years, and hopefully much longer. I also paying into my pension fund of course, and Social Security. I should also say that I have purchased Mr. Otter's book and am anxiously awaiting its arrival. My husband and I are probably going to move our Roths over to Vanguard. They are currently with Thrivent (on the advice of my father in law, which I'm not sure was good) My district only offers 4 companies with which to work. I have requested information from all 4, but have actually only received any from one. My options are:

 

Lincoln Financial Group (403b and 457)

MetLife

VALIC

Security Benefit

 

I was able to contact the Lincoln rep, and according to her, their fees are on the low end. This is from an email she sent--"The Lincoln Alliance® program is mutual fund based and offers a number of features for clients including:

 

No sales charges (commissions), no annual account fees, no set-up fees, no administrative fees, and no surrender charges.

Investment manager expense ratios vary based on the mutual funds selected (see far right column of performance attachment).

Retirement plan assets accumulate tax-deferred.

Allows control over assets with the stable value account (earns minimum of 3% interest), bond fund, and various stock mutual fund options.

Can be used to consolidate contributions from other retirement plans into one place.

Allows rollovers to a new employer’s plan or IRA without penalty."

 

She also said that the weighted expense ratio for the aggressive model (which I assume I should use) is .922%. The moderate one was .66%.

 

Does anyone have any experience or warnings for any of these companies? I don't want to make a poor choice, but I feel like I don't have many choices. I know many of you advise people with few choices to push the district to add more, but I doubt mine would. The relationship between teachers and "the man" is very adversarial. Thank you in advance for any help you can give me! I appreciate it!

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You are doing some good things! Funding the Roth, excellent-however, Thrivent's Fund charges are outrageous. Those companies (Met Life, LFG, VALIC) are what's wrong with the 403b provider market. Rule #1 in dealing with them-do not believe any sales reps!! Their objective is to sell you their product so THEY can get paid. They don't give a damn about you. Yes, blunt but true. I'll let the teachers here chime in about how to strategize a better 403b choice. Continue to do your homework. Knowing the costs of investments is the most important thing you can know, no mutual fund manager is so much better than another that they are worth paying more for. Vanguard is a good choice. Second thing, have a balance-invest in some bonds and international stock funds. Do your homework on these. Ask questions. That is why this board is here.

 

Low expense ratio (.99is high, less than .5 is pk, less than .25 is best)-important to get familiar with how funds charge. Here's a comparison:

 

Charges are spelled out in the mutual fund prospectus (investment document)You can get every mutual fund prospectus with a short internet search (see below).

 

Here's a quick analysis of Thrivent vs. Vanguard.

 

Each Mutual Fund Company is required to disclose (in the prospectus, see fees) what their fees would be if you invested $10,000, and earned a return of %5. This way you can compare apples to apples. They must give you their expenses (what they take in return for managing your money) over periods of 1, 3, 5 and 10 years.

 

Most Thrivent funds are charging between $1800-2000 over a ten year period. So your 10k earning %5 would get you $16,470. Thrivent takes 2 grand of that. That's a third of your gains. For the same investment Vanguard charges $200-300.

 

So consider if you invest 10k every year, you're losing TENS OF THOUSANDS of dollars to crooks like Thrivent!!!!

 

Unfortunately the 403b provider market is largely run by the same type of mutual fund companies and insurance companies. They are not your friends.

 

Thrivent prospectus link: Thrivent

 

Vanguard: Vanguard

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Good job Mark. I couldn't agree with you more.

 

 

Kansas,

 

I sound like a broken record but I would lobby your district for at least one non insurance low cost 403b provider.

 

While some insurance companies have lowered their fees somewhat and some dropped their surrender charges which is another good step in the right direction, I still don't trust or like them.

 

 

Also don't take advice from relatives. It was my father in law who swore by American Express years ago and I went and believed him. That was a huge mistake for me as a young teacher. I paid dearly for that mistake.

 

At your age you are fortunate that you found this site. Heed the advice here. You will get the truth !!

 

Max out your roth IRA's and avoid your current 403b choices. Invest in your 403b only if you can get better choices. Otherwise you would be better off investing in low cost index funds in a taxable accounts with any extra money you have. Just remember that bond funds are not tax efficient so keep those in your roth, and keep your equities in your taxable accounts. Index funds are very tax efficient.

 

Tony

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So with my current options you could advise to not invest with any of them? I talked with our NEA and I was told that the benefits committee had little to no interest in adding more vendors. I have pushed for more information on that. Is there a way to have non-employee sponsored retirements plans be tax deferred? I did not think there was. My husband is an adjunct professor at many schools and because of that our total tax withholdings are always off, and this year we owe a lot of money. I would like to try and avoid that in the future by saving some pre-tax dollars. Lincoln does not seem to offer many funds to choose from, and I think only one is an index fund. But I would be able to pick my own from their list, which might be a way to avoid some of the higher fees funds. Is that a bad idea? Thanks!

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Your benefits committee needs a new member -You,and your fellow workers deserve better than what they are getting.

 

There is no distinguishing difference between any of these. The similarity is high fees.

 

Lincoln Financial Group (403b and 457)

MetLife

VALIC

Security Benefit

 

look hard and deep. Even an index fund will cost you an arm and a leg in these plans.

 

 

Lobby for better choics . It can be done . This committe either is undereducated on retirement plans or they have relatives who sell these products.

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Hi Kansas,

Good for you for getting into this at such a young age. It will serve you well! I agree with the advice already rendered, but there is one thing I will add: If you and your husband do need some tax shelter, you might be able to do it through a Traditional IRA. There are restrictions on this, however. I copied the paragraph below from IRS.gov. It gives the limits on contributions for 2011 based on your access/involvement in an employer-sponsored plan, (such as your 403b)and your Adjusted Gross Income (AGI). I contribute quite a bit to my 403b, but I also am able to contribute the max to a Traditional IRA because of my income situation. I have mine with Vanguard. Since I do not own a house and my children are grown, it has helped my tax situation quite a bit. Good luck and keep harping on your reps. Your current choices really do stink.

 

 

 

 

 

For 2011: The deduction for taxpayers making contributions to a traditional IRA is phased out for singles and heads of household who are active participants in an employer-sponsored retirement plan and have modified adjusted gross incomes (AGI) between $56,000 and $66,000, unchanged from 2010. For married couples filing jointly, in which the spouse who makes the IRA contribution is an active participant in an employer-sponsored retirement plan, the income phase-out range is $90,000 to $110,000, up from $89,000 to $109,000. For an IRA contributor who is not an active participant in an employer-sponsored retirement plan and is married to someone who is an active participant, the deduction is phased out if the couple’s income is between $169,000 and $179,000, up from $167,000 and $177,000.

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Traditional IRA would be good if you are looking to lower your current taxable income. However, you are limited to the amount you can contribute to an IRA be it Roth or Traditional. That amount for under age 50 is $5000 for 2011 (think this is going up to $5500 in 2012) but this is a paltry sum, IMO. If your husband has good choices he should max out his contributions (max is probably $16,500) and then determine which IRA to utilize. Usually if you are eligible to participate in a Retirement Plan then the Trad IRA contributuion is nondeductible-you can still make it and get the advantage of tax free growth but why would you when tyou can contribute to a Roth, which also isn't deductible but grows tax free and withdrawals are tax free-and there are no Required Minimum Distributions. Ever.

 

The question then becomes what are your husband's choices?

 

Or start lobbying hard among your fellow teachers but my experience has been that is a verrry long process. You need a plan (and action) now.

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What stinks for us is that my husband does not have a full-time job anywhere. He has a PhD in History and would love to work full-time at a university, but the market is just terrible. Right now he adjuncts at 4-5 schools depending on the semester, but is not entitled to benfits anywhere. So we both currently max out a Roth but I know that is not enough. I have been talking with someone from our union and the district does not want to offer any more choices--he told me that the last time they tried to add any new providers the district said they would have to get rid of one to keep the options at 4, which would upset the people who used the company that was axed. I am still going to keep pushing, but I am not optimistic. Ideally I would rather lower our tax liablity by paying into a retirement plan than just uppping the amount withheld, but I don't want to waste money in the long run.

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What stinks for us is that my husband does not have a full-time job anywhere. He has a PhD in History and would love to work full-time at a university, but the market is just terrible. Right now he adjuncts at 4-5 schools depending on the semester, but is not entitled to benfits anywhere. So we both currently max out a Roth but I know that is not enough. I have been talking with someone from our union and the district does not want to offer any more choices--he told me that the last time they tried to add any new providers the district said they would have to get rid of one to keep the options at 4, which would upset the people who used the company that was axed. I am still going to keep pushing, but I am not optimistic. Ideally I would rather lower our tax liablity by paying into a retirement plan than just uppping the amount withheld, but I don't want to waste money in the long run.

 

Hi Kansas,

Keep pushing and try to get others to sign a petition. Ask your district for the investment policy statement, that explains their flimsy excuse. Also, you might consider calling your local reporter and let him or her know the situation. Just explain: "As you might know, teachers' pensions are being attacked all over the country these days and getting blamed for the country's financial woes. So my teachers pension may not be around when I retire in 30 years. The only way I can see to plan for retirement is to use a quality 403b but the four choices offered by my district are all the same, high priced annuities that pay out extremely low interest rates. Sure I won't lose money, but the price I pay for no losses will not get me to my financial goals of the possibility of only using my 403b for retirement. I need quality choices now. My union can't help and the district says that people will get upset because they would have to ax one of the companies to make room for a low cost no load mutual company that I am asking to be added." I got lucky years ago and as a result of the article, other teachers contacted me and we started organizing.

 

Here is a company you might consider. I have used this company: http://learn.tiaa-cref.org/content/K12?source=10002

 

Here are a couple of stories. What you are going through is not new: http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aQm8SUAzWPHk&refer=home

http://www.forbes.com/forbes/2005/0425/100.html

 

Steve

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What stinks for us is that my husband does not have a full-time job anywhere. He has a PhD in History and would love to work full-time at a university, but the market is just terrible. Right now he adjuncts at 4-5 schools depending on the semester, but is not entitled to benfits anywhere. So we both currently max out a Roth but I know that is not enough. I have been talking with someone from our union and the district does not want to offer any more choices--he told me that the last time they tried to add any new providers the district said they would have to get rid of one to keep the options at 4, which would upset the people who used the company that was axed. I am still going to keep pushing, but I am not optimistic. Ideally I would rather lower our tax liablity by paying into a retirement plan than just uppping the amount withheld, but I don't want to waste money in the long run.

 

Does he get a 1099 or a W2? Very important. You may have another (better) option. But Steve is absolutely right. You and your fellow teachers need to push reform or you will continue to get hosed by 403b providers..

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He gets both. We both do. Between the 2 of us this year we had 4 1099s and 5 W-2s. It is a withholding nightmare.

 

You can file a Schedule C with your tax return-using the 1099 income as your "business income." You can then set up a SEP IRA and deduct up to 25% (of the 1099 income) or $49,000, whichever is smaller. In addition you can deduct any business expenses associated with earning that income, including miles driven (usually) If you use a home office exclusively for business, you can deduct that as well. It's a great way to save a bundle in taxes legitimately-if you play by the rules.

 

Here's an example, if you had $50,000 in 1099 income, you could deduct up to $12,500 into the SEP IRA and your taxable income of the $50k would be reduced to $37,500.

 

I would consult a tax professional before proceeding. You can open a SEP at the custodian of your choice, like Vanguard or Fidelity and then choose good low cost funds. That's my professional advice, I'm a CFP. You'll save more on taxes and avoid the high fees of the 403b until you get a better provider or an employer with better choices.

 

You can email me if you like: mark@cambridgefinancialadvisors.com

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