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Maxed Out Iras, Not A Great 403(B) Provider Available

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mmk,

krow36 showed the choices I would recommend too. You will have a great plan, if those fees are low. The only asset class that is missing are Mid-Caps. Otherwise, you have a great start.

Good luck in finding out what the costs are.

Steve

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Hi krow36,

My responses are in red.

Have a great day,

Steve

 

 

Steve,

The management wrap fee in VALIC Group Mutual Fund Program is between 0.0% and 1.00%. mmk will have to find out what it would be in her case. If her current balance with VALIC if transferred, might help to lower the wrap fee.
If she used the VALIC Inside Edge Retirement Program, the total expense would be 0.80%. Yes, 0.40% is not ideal for an S&P 500 index fund, but I think it’s usable. In the 25% or 28% tax brackets, being able to deduct up to 18k from her income is a big advantage.
Steve, you say "I have never heard of any large insurance carrier with a total of .80% fees or less (which means no M&E fees, on going commissions, etc. etc.).” I’m relying on 403bcompare to accurately disclose the fees in both annuity 403b plans and in mutual fund 403b plans. There’s a difference that you seem reluctant to acknowledge. The VALIC mutual fund 403b plans do not have M&E fees. If they did, they would have to be disclosed on the 403compare website, wouldn’t they?
You are correct, no M&E fees are charged for mutual funds. I have a long history with VALIC. Our committee has a bad feeling about VALIC when we had them as our TPA for our 403b and 457b plans for five years. I don't trust them. If I were in mmk position, I would not use them period because I would have to rely on trust, and trust should not be part of any financial equation. They are extremely good at hiding fees. This conversation is similar to the previous one we had about NEA plan. VALIC and NEA don't have the teachers interest first. We still have not heard of a teacher who has used NEA's mutual fund option. I have a hunch that only a handful of teachers know about it because NEA Security Benefit is not going to promote it.
I don’t think mmk is “very green”. She has previously worked with her district to get lower cost funds. She is very aware of the high cost of annuity 403b plans. As I mentioned in my previous post, if she knows what she wants, I don’t think she should hesitate to talk to a VALIC rep. It’s possible it can be done by email. Because VALIC is the ONLY provider for her district, I think she has a strong argument for there having to be a mutual fund 403b plan available, not just annuity 403b plans.
I beg to differ here. I assume that 99% of people who come here for help are in a weak position to tackle the likes of Valic or sales person about fees and objective information. The sales force is extremely shrewd and we should never underestimate their power to influence our colleagues even after coming here and getting help! It's tough out there because there is nobody else in person to talk to. As you know, the unions, benefits and districts offer NO HELP! For example, there are a couple of teachers and friends who know a lot more than mmk, and they still wanted to see a financial adviser! I couldn't believe it. Get this, one teacher balked at signing up for a fee only adviser because he wanted to charge an AUM and she signed up with him under pressure without saying anything. She has read up on investing and gone to our workshops and she is still with the adviser. Despite her financial knowledge she was extremely intimidated by a fee only fiduciary. I was surprised that she didn't say anything and voiced her objection. All she wanted was to pay by the hour for him to look at her portfolio. So, it is very difficult to know who is savvy enough to take on the professionals by reading their discussions here.
mmk, I’m assuming that your current VALIC plan is an annuity. Is that correct? The paperwork you originally signed must give the name of the plan you are in. You need to find out if the mutual fund 403b plans are available to you. Of course the VALIC rep will try to sell the annuity plans rather than the MF plans because he and VALIC make a lot more on them.

 

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One of the reasons I come here is I DON'T have a lot of time or what I feel is the necessary brainpower to read/understand what I need to know (including your posts!) to invest well. So this response is NOT thorough, but what I have time for, sadly.

 

krow36:

 

I take it you provided a list of all the funds available in your district's VALIC Group Mutual Fund 403b plan? If so, which funds are you using?

I am ONLY in ACITX for about $300/month. I went conservatively and cautiously into my relationship with Valic. I know Dreyfus is usually good, so I'll reconsider that.

 

I do NOT know what our "management wrap fee" is -- I'll research that further.

 

sschullo:

 

I don’t think she should hesitate to talk to a VALIC rep. It’s possible it can be done by email.

I distrust financial sales reps, and I don't think of my Valic reps as "advisors," but sales reps. Here's what FINRA.org says about our reps:
http://brokercheck.finra.org/Individual/3249698
http://brokercheck.finra.org/Individual/Summary/5448180
I've tried conducting ALL of my business with them via email (so I have any promises in writing), but they act like they're not really interested if they can't talk you into what they want to talk you into.

You are correct that my district offers (little to) no help. We are not a union district (I live in the deep south, where unions are considered evil). I'm on my own. I rely on organizations like 403bWise and the Bogelheads forums to help. I worked with a fee-only advisor at the Garrett Planning Network some years ago (not related to Valic) and came away thinking that I was already doing things better than she could tell me to, even though I have NO confidence that I'm doing anything better than (as I said previously) pure .

I just try to diversity, monitor, and NOT pay fees/commissions, unless performance warrants it.

Here's what happens when you're overwhelmed and try to use novice knowledge to manage your own retirement -- I gave you guys slightly wrong info about my retirement savings. My 403b is a ROTH 403b. What I actually did, to lessen tax liability (due to husband's increased income) was to STOP contributing to my individual Vanguard Roth IRA, move all of my Vanguard IRA investing over to a "Traditional" plan (didn't change existing assets, just contributions going forward), and invested in our ROTH 403b to offset the loss of my Vanguard Roth contributions.

This is one reason I think that the movement toward 401Ks and away from traditional pensions is bad -- I have the interest and some knowledge, and I feel like I'm . Having just watched my own mother piss through a near-fortune just to manage her healthcare costs as she reached 93 years old and then died from cancer, I know I'll need every penny I can get my hands on. I cannot imagine what a gullible person will suffer at retirement time, if all they have available is a self-invested fund. I'm lucky that I AM a participant in a teacher pension plan, as well (even though -- did I mention? -- I'm a technology employee, not a teacher).

Thanks everyone.

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One of the reasons I come here is I DON'T have a lot of time or what I feel is the necessary brainpower to read/understand what I need to know (including your posts!) to invest well. So this response is NOT thorough, but what I have time for, sadly.

 

krow36:

 

I take it you provided a list of all the funds available in your district's VALIC Group Mutual Fund 403b plan? If so, which funds are you using?

I am ONLY in ACITX for about $300/month. I went conservatively and cautiously into my relationship with Valic. I know Dreyfus is usually good, so I'll reconsider that.

 

I do NOT know what our "management wrap fee" is -- I'll research that further.

 

sschullo:

 

I don’t think she should hesitate to talk to a VALIC rep. It’s possible it can be done by email.

I distrust financial sales reps, and I don't think of my Valic reps as "advisors," but sales reps. Here's what FINRA.org says about our reps:

http://brokercheck.finra.org/Individual/3249698

http://brokercheck.finra.org/Individual/Summary/5448180

I've tried conducting ALL of my business with them via email (so I have any promises in writing), but they act like they're not really interested if they can't talk you into what they want to talk you into.

 

You are correct that my district offers (little to) no help. We are not a union district (I live in the deep south, where unions are considered evil). I'm on my own. I rely on organizations like 403bWise and the Bogelheads forums to help. I worked with a fee-only advisor at the Garrett Planning Network some years ago (not related to Valic) and came away thinking that I was already doing things better than she could tell me to, even though I have NO confidence that I'm doing anything better than (as I said previously) pure ######.

I just try to diversity, monitor, and NOT pay fees/commissions, unless performance warrants it.

 

Here's what happens when you're overwhelmed and try to use novice knowledge to manage your own retirement -- I gave you guys slightly wrong info about my retirement savings. My 403b is a ROTH 403b. What I actually did, to lessen tax liability (due to husband's increased income) was to STOP contributing to my individual Vanguard Roth IRA, move all of my Vanguard IRA investing over to a "Traditional" plan (didn't change existing assets, just contributions going forward), and invested in our ROTH 403b to offset the loss of my Vanguard Roth contributions.

This is one reason I think that the movement toward 401Ks and away from traditional pensions is bad -- I have the interest and some knowledge, and I feel like I'm ######. Having just watched my own mother piss through a near-fortune just to manage her healthcare costs as she reached 93 years old and then died from cancer, I know I'll need every penny I can get my hands on. I cannot imagine what a gullible person will suffer at retirement time, if all they have available is a self-invested fund. I'm lucky that I AM a participant in a teacher pension plan, as well (even though -- did I mention? -- I'm a technology employee, not a teacher).

 

Thanks everyone.

Hi mmk,

You have a lot on your plate. You need somebody to help you walk through the choices. I would find a fee only financial adviser and pay them by the hour to help you select what is best. It is hard to use the information you provide and response from these boards. You gave us IRAs, Roth Iras, 403bs, your husband's choices and 401ks. Try to slow down. There is no hurry. We are just trying to help. This will get easier.

 

krow36 provided the 4 asset classes to locate on your plan. If you cannot find them, get enrolled and your district or VALIC fails to respond to your pleas for help and enrollment, go back to that financial adviser or find another one. Let us know if that Garrett Adviser will not accept hourly pay.

 

It is hard to believe that nobody wants to enroll you in the choices you want?

 

Keep us in the loop,

Steve

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One of the reasons I come here is I DON'T have a lot of time or what I feel is the necessary brainpower to read/understand what I need to know (including your posts!) to invest well. So this response is NOT thorough, but what I have time for, sadly.

 

 

krow36:

 

I take it you provided a list of all the funds available in your district's VALIC Group Mutual Fund 403b plan? If so, which funds are you using?

I am ONLY in ACITX for about $300/month. I went conservatively and cautiously into my relationship with Valic. I know Dreyfus is usually good, so I'll reconsider that.

 

 

I do NOT know what our "management wrap fee" is -- I'll research that further. Good. It shouldn't be hard to find out.

 

sschullo:

 

I don’t think she should hesitate to talk to a VALIC rep. It’s possible it can be done by email.

This quote is from me, not Steve. I think he thinks the opposite.

I distrust financial sales reps, and I don't think of my Valic reps as "advisors," but sales reps. Good! Here's what FINRA.org says about our reps:
http://brokercheck.finra.org/Individual/3249698
http://brokercheck.finra.org/Individual/Summary/5448180
I've tried conducting ALL of my business with them via email (so I have any promises in writing), but they act like they're not really interested if they can't talk you into what they want to talk you into.

Good idea to use email if possible. Yes, they want a face to face so that they can work their sales magic.

You are correct that my district offers (little to) no help. We are not a union district (I live in the deep south, where unions are considered evil). I'm on my own. I rely on organizations like 403bWise and the Bogelheads forums to help. I worked with a fee-only advisor at the Garrett Planning Network some years ago (not related to Valic) and came away thinking that I was already doing things better than she could tell me to, even though I have NO confidence that I'm doing anything better than (as I said previously) pure ######. Can you tell us what state you are in? School district employees in many states have 457b plans available that can be better than the their 403b plans.

I just try to diversity, monitor, and NOT pay fees/commissions, unless performance warrants it.

I think you are way ahead of all those 403b users who are investing in annuity 403b's!

Here's what happens when you're overwhelmed and try to use novice knowledge to manage your own retirement -- I gave you guys slightly wrong info about my retirement savings. My 403b is a ROTH 403b. What I actually did, to lessen tax liability (due to husband's increased income) was to STOP contributing to my individual Vanguard Roth IRA, move all of my Vanguard IRA investing over to a "Traditional" plan (didn't change existing assets, just contributions going forward), and invested in our ROTH 403b to offset the loss of my Vanguard Roth contributions.

This is one reason I think that the movement toward 401Ks and away from traditional pensions is bad -- I have the interest and some knowledge, and I feel like I'm ######. Having just watched my own mother piss through a near-fortune just to manage her healthcare costs as she reached 93 years old and then died from cancer, I know I'll need every penny I can get my hands on. I cannot imagine what a gullible person will suffer at retirement time, if all they have available is a self-invested fund. I'm lucky that I AM a participant in a teacher pension plan, as well (even though -- did I mention? -- I'm a technology employee, not a teacher).

Thanks everyone.

OK, you are now contributing to a VALIC Roth 403b ($3,600/yr) and to a Vanguard traditional IRA ($6,500/yr?). In the past you contributed to a VALIC traditional 403b and a Roth IRA. If you want to “lessen tax liability”, I think you have several options.
You could change your 403b back to traditional from Roth. I don’t see that your DH’s (Dear Husband’s) self-employment income should cause you to change your 403b from traditional to Roth. You can increase your contribution up to 18k/year, so there’s lots of tax-deferment possible there.
If your DH has significant self-employment, you can help him set up and have him contribute to either a SEP IRA (up to 20% of income--a max of 18k) or a solo 401k (up to 18k). If he has employees, you should consider a SIMPLE IRA (up to 12.5k + 3% of income). None of these plans are difficult to set up or costly. You can set them up at either Vanguard or Fidelity and use their very low cost index funds. The Bogleheads are very experienced in helping folks with this type of problem.

 

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mmk, have you found out the account maintenance fee that VALIC uses with your school district? You are paying it with the ACITX fund you’re currently contributing to, and it would be good to know how much more than the ACITX expense ratio of 0.47% you are paying. ACITX is a bond fund using mostly inflation-protected Treasury bonds, so if you want the inflation protection, you should continue to use it. If you want a bit more return and the slightly greater risk that goes with it, you could use the Dreyfus Bond Mkt Index fund DBMIX with its slightly lower ER of 0.40%. DBMIX did better than ACITX during the 2007-2009 recession. I think it might a good idea to use both bond funds—maybe 2/3 DBMIX and 1/3 ACITX?

You haven’t told us what your desired asset allocation is, or what you have in your IRAs, but I suspect you might want to be somewhere between 50/50 and 40/60 stocks to bonds? If it’s 40/60, the 60% bonds could be divided into 40% DBMIX and 20% ACITX. The 40% stocks could be the Dreyfus S&P 500 Index PEOPX, ER of 0.50%. If you want to have Int’l stocks in your asset allocation, you could hold them in your IRAs, or use the Dreyfus Int’l fund in your 403b. Not everyone (including John Bogle, founder of Vanguard) believes it’s necessary to invest in Int’l stock market funds because the S&P 500 Index includes many US stocks with Int’l exposure.
I don’t believe that teachers in Georgia, unlike in some states, have a state-wide 457b plan that they can use instead of or in addition to their 403b plan.
Have you made a decision on switching back from Roth to traditional 403b? That would lower your taxes, especially if you increased your contribution.

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Sorry folks. I don't have dementia (yet), but I'm getting confused -- and this is one of the things I fear most about aging -- losing my grip on things I intend to do.

 

I'm only 54, but I worry about my brain, already. It'd be nice if we had traditional pensions (like my parents had) that managed this for us. (Some would disagree, I'm sure.)

 

My 403B is not a Roth. It's a TAX DEFERRED plan (which I'm pretty sure means that it's taken from my pay before taxes are figured, but I'll pay taxes when I withdraw -- right? Like a traditional ira).

 

So ... Doh!

 

Our 457 is also with Valic. I hadn't looked into it. Not sure why. I'm in Georgia. There's no state-wide anything here, except our Teacher Retirement (Pension) plan, which I am lucky to be a participant in even though I'm a central office employee and not a teacher. So I will have that to help, as well. I'm vested. Don't know what my benefit will be, because I'm not sure how long I'll last here!

 

My "Recordkeeping Administrative Fees paid to VALIC from Fund Family" on the fund I'm in is .25%. The Dreyfus fees are lower (.1 - .15).

 

I've just emailed our "advisor" for a copy of the Annual Participant Fee Disclosure. Pretty amazing that I can't just download that from my online account.

 

Thanks for bearing with me.

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Hi mmk,

It’s good that you found out the admin fees that VALIC charges for funds in your district. Hopefully the admin fees plus each fund’s expense ratio, are the total fees. Steve is right—don’t rely on hope. Get it on paper from VALIC.
On April 18 you wrote:
"My 403b is a ROTH 403b. What I actually did, to lessen tax liability (due to husband's increased income) was to STOP contributing to my individual Vanguard Roth IRA, move all of my Vanguard IRA investing over to a "Traditional" plan (didn't change existing assets, just contributions going forward), and invested in our ROTH 403b to offset the loss of my Vanguard Roth contributions."
Today May 10, you wrote:
"My 403B is not a Roth. It's a TAX DEFERRED plan (which I'm pretty sure means that it's taken from my pay before taxes are figured, but I'll pay taxes when I withdraw -- right? Like a traditional ira)."
With any traditional IRA, 403b, 457b, etc., you will include any distribution (withdrawal when retired) in your taxable income. Any distribution from a Roth IRA, Roth 403b, Roth 457b, etc., you do not include in your taxable income, because you’ve already paid income tax on the contribution money.

 

  1. I think I understand that you have contributed to both a traditional 403b and a Roth 403b. And that you’ve contributed to both a traditional IRA and a Roth IRA. Is this correct?
  2. Recently, due to husband’s self-employment income, you switched your 403b contribution from traditional to Roth and you switched your IRA contribution from Roth to traditional. Is this correct?
  3. Because you only made this change recently, your 403b is mostly traditional and your IRA is mostly Roth. Is this correct?

 

Your original post asked whether contributing to a VALIC 403b was worthwhile considering the expense. With the Dreyfus S&P500 fund’s ER of 0.50% and account mgt fee of 0.1 to 0.15%, a total expense of 0.6 to 0.65% is worth using in my opinion. The Dreyfus Total Bond Mkt fund with an ER of 0.40% plus 0.1 to 0.15% for a total expense of 0.5 to 0.55% is also worth using. The ACTIX bond fund with an ER of 0.47%, with total expense of 0.72% is usable if you want the inflation protection.

 

You also expressed a desire to reduce your taxable income in your OP. As mentioned before, you can contribute up to 18k to your 403b and to your 457b traditional plans which could reduce your taxable income by up to 36k. You could use the self-employment income for living expenses and contribute more of your income to your 403b and 457b accounts. In addition you could contribute 6.5k to your traditional IRA for a further salary deduction.

 

Are the funds in your VALIC 457b the same ones that are in your 403b? If so, are you using only ACTIX in your 457b also?

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A quick update - Valic pointed out the tiny print showing me a .6% administrative fee. I guess that's not awful?

 

I will try to take the time to answer other questions about my situation as soon as I can! Thanks again, all.

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A quick update - Valic pointed out the tiny print showing me a .6% administrative fee. I guess that's not awful?

 

 

Not a big deal in my opinion.

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I think your decision on whether to use the VALIC 403b, or not, might hinge on how much total you think you can invest for retirement each year? You could save the maximum 6.5k in your traditional IRA, 6.5k in your husband's traditional IRA, and also contribute to a solo 401k (or a SEP IRA?) based on your husband’s self-employment income. That may give you enough salary reduction and as much saving for retirement as you want or are able to do? Of course these 3 accounts can all be at a low cost providor like Vanguard or Fidelity—a big plus. What do you think?

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This is a really interesting discussion, but I would suggest there is another alternative. The status quo with 403(b) is multiple vendors and the participant has the responsibility of figuring out which vendor to use. Teachers are overworked (and underpaid) and most of them don't take the time you all have taken to educate themselves about how these plans work and what they cost. Because of this, the participation rate is usually under 35%, which is horrible! It's time to change the status quo! Why isn't the 403(b) treated like any other benefit the district offers? The plan should be put out to bid, for a single vendor and record keeper, with a brokerage option. This makes sure that all employees are getting the same deal, and same level of service. We also have seen participation rates increase dramatically. For districts that don't have the time to do the rfp, there are co-op plans that they can join that have already done the due diligence. Over 100 districts throughout the country have already made the change. This makes the plans better for everyone!

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This is a really interesting discussion, but I would suggest there is another alternative. The status quo with 403(b) is multiple vendors and the participant has the responsibility of figuring out which vendor to use. Teachers are overworked (and underpaid) and most of them don't take the time you all have taken to educate themselves about how these plans work and what they cost. Because of this, the participation rate is usually under 35%, which is horrible! It's time to change the status quo! Why isn't the 403(b) treated like any other benefit the district offers? The plan should be put out to bid, for a single vendor and record keeper, with a brokerage option. This makes sure that all employees are getting the same deal, and same level of service. We also have seen participation rates increase dramatically. For districts that don't have the time to do the rfp, there are co-op plans that they can join that have already done the due diligence. Over 100 districts throughout the country have already made the change. This makes the plans better for everyone!

 

Yeah! We hear you debbyk. We have been preaching the competitive bid option for years. In fact our advisory committee and our district were threatened with liability if we went against our glorious state insurance "all willing vendors" code. It ain't happening, not for another generation of teachers here in California. There is no political will anywhere in the districts, benefits or unions. NOWHERE! in California.

We have to get teachers to use Pension2, a great low cost 403b plan for all California school districts.

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Steve, it's too bad that CA and TX don't think it's necessary to treat 403(b) plans like any other benefit plan! Luckily the rest of the country isn't mandating individuals are on their own and the district is allowed to negotiate on behalf of their employees! Thanks for advocating single vendor for the other 48 states!

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Because the awareness level is rising in my district, combined with our expiring contract next year, our union president has heard from us (well, a couple of us) that we want the 403b plan to one of the negotiated benefits.

 

I am following up with our business staff in the next couple of days to pursue the single-vendor option.

 

As debbyk stated, our district opts out of doing their own rfp and instead chooses one of the co-ops TPA's (there are only 2 choices). Then, the district must board-approve that choice. If it sounds arduous to you, you're right.

 

One thing I'm not quite clear on is this: What makes a district either protected or unprotected from fiduciary liability?

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