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roybrown

Looking For Advice Again

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I am a bit closer to figuring this retirement stuff out, but need a bit more advice. I am currently putting about $400 a month in a TSA. There are fees in the subaccounts and they take 1.34% off of everything annually. Plus no mutual funds. So I definitely want to stop contributing to that. My best option within the 403B world is a company with mutual funds, but they take 5.75% on the way in. Don't like the sound of that either. I'm thinking I should avoid contributing to a 403B totally.

 

My wife has an account with Vanguard from an old job of hers with about 8000 or so in it. Can she start contributing my 400 a month to that account? I'm reading that they have very low fees but you have to manage it yourself. How tricky is that? She also has a 401k with her current job at t.rowe price with a 1.5% match. And she does $200 a month towards a Roth IRA.

 

Any advice would be appreciated.

 

Thanks,

Roy

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Roy, you are correct to run in the opposite direction from any product with a 5.75% sales charge--wow, that is really outrageous! You are also correct to run from insurance products (which typically have big sales fees buried in the product so that you don't easily see them).

 

It's simple to manage your own fund choices via Vanguard, which is one of the best and lowest-cost options you will ever find. However, if your wife's investments are in a 403b or 401k account set up via her prior employer, I don't think she can contribute more to it. Since she no longer works there, it may be possible for her to roll that account into a traditional IRA at Vanguard while preserving the tax-deferral benefits. The disadvantage of the traditional IRA compared to those other accounts is that the IRA has a lower limit that you can contribute tax-deferred each year. I think it's $5,000 per year, $6000 if you are over 50 years old. There are also income limits that need to be considered with the IRA--if you have another retirement plan , your tax benefit with the IRA phase out at a certain income level, so you need to check out those rules before you contribute to an IRA.

 

One other consideration when putting the retirement money in you wife's account: retirement accounts belong to individuals, so it is probably not a good idea for a disproportionate percentage of a married couple's retirement funds to be in the name of just one partner. The concern here is that if there is unexpected turn of events of the sort we don't like to consider--legal judgement, divorce, etc.--that money would belong to her alone.

 

Perhaps someone here can step in and clarify whether your wife can do that rollover without penalty. On the other hand, you can easily set up an IRA at Vanguard yourself, no employers involved. That'd probably make the most sense, if you fall within the income limits to make fully deductible contributions and your 403b options are as dismal as you describe.

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I agree with Whyme on all accounts. I do believe you can roll your wife's $8000 or so into a personal IRA with no penalty if she has separated from that employment. Make sure to do it direct - i.e. from the employer directly into Vanguard or wherever. Do not take possession of the money.

 

Vanguard is really simple to work with. I have a dormant 403b with them, a Roth IRA, and a Traditional IRA. I manage the latter two online very simply. I contribute online and I can move funds around too. Initially Vanguard walks you through the process with quizzes to determine your risk tolerance and stage of life. Based on that you have a variety of choices to meet your goals.

 

As Whyme said, IRAs and 403b's are individual, and I add my caution for putting too much in your wife's name and not a balanced amount in your own.

 

I would make a call to Vanguard about the possible rollover. They can immediately tell you if it can be done and if you decide to go with them, they will personally handle the paperwork for you (actually for your wife). You will find these companies very accommodating when you are giving them money as opposed to when you are taking money out!

 

Let us know what you decide to do.

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Just to add: I believe the money put into retirement is community property, at least in some states. In CA, my teacher friend was the only working spouse and when she and her husband divorced, she had to share her retirement with him 50/50. Had she divorced before 12 years of marriage that wouldn't have happened, but she waited and it REALLY cost her: 50% of retirement, 50% of house... At least that was her situation. Hopefully never an issue for the writer.

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Thanks for the information everyone, very helpful as usual. I didn't realize that she couldn't do two 401k's at the same time, so what about this: She rolls the Vanguard into her current 401k with t. rowe price and continues her normal 6% with the 1.5% match by employer. She is also contributing $200 a month to a roth IRA with fidelity, although that won't last too many years since we will go over the income limit. I will totally stop my 403B nonsense and call Vanguard to start a traditional IRA with that money. I think I will lose the tax deduction of about $4500 a year, but it should still be better than the high fees.

 

Any glaring mistakes?

 

My one other problem is the 23k I have sitting in the TSA. They said it can only be transferred to another 403B account. It will cost me $800 penalty to move it, plus the 5.75%, about $1300, if I want to move it to an account with mutual funds. An "advisor" told me I would be able to make that money up pretty quickly. Any thoughts on that?

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... what about this: She rolls the Vanguard into her current 401k with t. rowe price and continues her normal 6% with the 1.5% match by employer. She is also contributing $200 a month to a roth IRA with fidelity, although that won't last too many years since we will go over the income limit. I will totally stop my 403B nonsense and call Vanguard to start a traditional IRA with that money. I think I will lose the tax deduction of about $4500 a year, but it should still be better than the high fees.

 

My one other problem is the 23k I have sitting in the TSA. They said it can only be transferred to another 403B account. It will cost me $800 penalty to move it, plus the 5.75%, about $1300, if I want to move it to an account with mutual funds. An "advisor" told me I would be able to make that money up pretty quickly. Any thoughts on that?

 

 

I think she could alternatively roll the ex-employer's 401k into a trad IRA at Vanguard, which would give up the simplicity of consolidation, but gain the flexibility and lower fee structure of a self-directed Vanguard account, a good thing. Vanguard should be able to tell you whether there's any problem with this, and help her to complete the transaction if it is do-able without any taxes or penalties. She should definitely continue to contribute, and certainly she should get the employer's match--so should you, if one is available: that immediate 100% gain in the contribution makes that worth doing, even if the investment plan is dismal. Putting something in a Roth IRA is also a good idea. I wouldn't start a trad IRA for yourself if you aren't going to be able to take the immediate tax deduction because your income is too high: a Roth would make more sense in that case (others here should correct me if I'm jumping to the wrong conclusion).

 

As to that TSA, you need to get very clear about those penalty fees and back-end loads (that percentage charged when you sell)--do those apply no matter what, or would they change depending on how long the money is in the account? If it turns out that you don't get hit with those fees if you leave the money in there for two or three years, it might make sense to wait. However, if the holding period is long--10 years, say--or if that back-end 5.75% is there no matter what you do, you might be best off to take the hit and chalk it up to experience. But you need to be rolling it into a significantly better investment, one that carries no sale loads (like that 5.75%). Do you have such an option? Is there a state plan available where you are?

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Again I'm on the same page with Whyme. (Good point about the divorce laws and community property angle! I didn't think of that).

 

My final answer:

 

1. Roll that old-job 401K into a TRAD or ROTH IRA with Vanguard. Trad if you need the tax deduction/Roth if you don't.

 

2. I wouldn't roll a red cent into a company that takes 5% on the way in, or anything on the way in! Come on....and no one should be telling you that you can "easily" make up the cost of the rollover/surrender. What a bunch of sharks.

 

Unless you tell us otherwise, you have rotten options 403b-wise. Do what you can on your own and sleep at night.

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