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PurpleReign

403b Investment Advice

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On 8/15/2019 at 11:02 PM, likepurplereign said:

I'm a new DCPS employee and so glad I came across this thread - I'm coming from a non-profit (where I made less but...) that was all Vanguard, TIAA-CREF, and TROWE-Price so this selection is pretty depressing.  The thing about DC is that 8% goes to a 403B pretty much automatically and another 5% goes to a 457 (unless you opt out). So, I have to figure out the least bad option for my 8%...  It's forced savings basically.

Purple Reign,

Do you get a pension?  Is the automatic 8% in 403 and 5% in 457 in place of a pension?

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likepurplereign,

Welcome to the board. It's my understanding that DCPS teachers have a pretty good 457(b). 

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Teachers Retirement Plan

“Upon hire, employees classified ET begin automatically contributing eight (8) percent (if hired on or after November 1, 1996) or seven (7) percent (if hired prior to November 1, 1996) of their salary on a biweekly basis into this retirement plan. . Employees who are not classified ET do not contribute to this plan. District of Columbia Teachers’ Retirement Plan Summary Plan Description (SPD).....In order to rollover or withdraw funds from this account, the employee must be separated from DC Government.”

You do not control how this money is invested unless you separate from service.

 Through the 403b and 457, you may invest additional funds that you’re able to invest into various funds.

Also, I wasn’t aware of a 5% contribution to a 457; this has not been my experience with DCPS.

 

 

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I would definitely try to get your district to add Fidelity and Vanguard. My wife and I are in the same boat. Our district 403b plans are too expensive, so we both max out a Roth IRA and have a taxable account in addition to our state teachers pension. You can use a taxable account to buy individual stocks that don't pay dividends to minimize taxes. Example: Berkshire Hathaway pays no dividend, so you pay no taxes on it until you sell the shares and it is diversified in that it is a holding company made up of many other companies and stocks. A taxable account allows you to harvest any losses each year on your taxes as well. Also, I like having a taxable account because I don't have to have as much money in my bank account that pays practically no interest. We leave just enough money in our bank account to pay the bills each month and the rest is invested in the taxable account after we max out the Roth IRA. If we had some kind of emergency we could just sell some stocks from the taxable account and transfer the money to the bank.  We also use a rewards card for purchases and pay it off at the end of the month in full because the rewards are FREE money. I am currently fighting to add Fidelity and Vanguard to our school district 403b options. I suggest everyone else do the same.

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Chris C

I agree with everything you just said. For instance buying mutuals funds in a taxable account can make sense for several reasons. Its good to own a little bit of everything-Taxable , IRA, Roth IRA, Roth403B and taxable 403b as well as 457b options. Variety gives you options since every investment is different when it comes to taxes.

However buying individual stocks is not a good idea to recommend to teachers IMHO because if that stock goes south you lose big. Mutual funds own hundreds of stocks so if some go down hard you don't suffer the consequences too much. I know folks who invested in stocks that were too good to fail and they lost their money after years of euphoric gains. I guess the payoff can also be bigger than a mutual fund if things go well but its not worth the higher risk. Their are plenty of Tax efficient mutual funds that can minimize tax consequences in a taxable account. You just have to know what they are. Index funds are highly tax efficient. And of course you never want to invest in bonds in taxable funds unless you need the income.

Just my two cents

Tony

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Absolutely agree that total market index funds are the way to go for most teachers because of diversity. I mentioned Berkshire Hathaway (Warren Buffett's company) because it is more diverse than most individual stocks. You can see all the companies they own and the stocks they hold here: https://en.wikipedia.org/wiki/List_of_assets_owned_by_Berkshire_Hathaway 

Individual stocks certainly have more risk and I would not advise them to someone that doesn't understand that or how to manage those risks. I probably should have mentioned that and considered this forum is mostly for teachers that are new to investing. Thanks for the comments Tony.

 

 

 

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