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Diosanny

New Teacher 403b Options

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Hello,

I am a new teacher heading into my 2nd year of teaching. My colleagues told me to start a 403b last year but I was little too overwhelmed with 1st year teaching jitters to start doing so, but I want to start this year. I met with an AXA adviser yesterday morning and everything seemed to be going fine, I was buying what he was selling, but then he pushed for paperwork with no time to think and alarm bells rang in my head. I decided to do my own research and found this discussion board. It seems like I was right to trust those alarms. I will admit that I have limited financial knowledge and a lot of these terms go over my head (I'm sure google is very curious with my recent searches) but I'm trying my best.

I have attached the list of vendors my district provides (I'm not sure if "provides" is the right term). I looked at their websites and I'm leaning towards Kades-Margolis because they're sponsored by the Pennsylvania State Education Association (union) or Horace-Mann because I believe that's where my mom has hers. 

Also, and this might be a silly question, but what is the purpose of the Third Party Administrator?

Any and all advice is welcome and appreciated! Thank you!

403b SDoL Vendors.jpg

403b Third Party Administrator.jpg

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I know for a fact AXA and Voya are bad. I strongly suspect Horace Mann is bad because anybody with "insurance" in their name almost always is. I don't know anything about Kades-Margolis Corporation.

Most teachers also have access to a 457b, do you? If so the 457b might have better options.

You may want to lobby your district to add better vendors (Vanguard and Fidelity are my favorites). I can help with that if you decide to.

The Third Party Administrator basically does the book-work and regulation work to setup the vendors and make sure things run properly. The district offloads this work onto the Third Party Administrator because they don't want to deal with it. The Third Party Administrator is almost always aligned with high cost vendors and use their influence to prevent low cost vendors. Don't trust them.

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Horace Mann is also bad.  They are the most popular vendor at my school, but that is because the salesman is a very popular guy in the community and is always bringing donuts, gifts, etc. to the teachers lounge, lol.  If only they knew how much those donuts are really costing them.

Do you have an employer match at your school? If not, I would consider maxing a Roth IRA ($5500) before doing the 403B.  The reason is, at your young age you are probably in the lowest tax bracket now that you will be in during your entire teaching career (?<12% effective).  For newer teachers paying the tax now (Roth) is often better than deferring income.  A Roth growing for 30+ years and compounding tax free is a very powerful tool.  Then a decade from now or so, when you have a higher income, you can increase your tax deferred 403B options, and cut back on the Roth if you can't afford to do both.

 

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EdLaFave and MNGopher - Thank you for your responses! I have asked about the 457b and the employer match and will report back.

Also, EdLaFave, I am very interested in lobbying the district for better options. Another teacher, who is a dear friend, told me about the AXA adviser and she looked heartbroken when I told her that it probably wasn't the best decision. She is the sweetest person and a mother to all so I would like to prevent others from making the same mistake.

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35 minutes ago, MNGopher said:

I would consider maxing a Roth IRA ($5500) before doing the 403B

If you search the form you'll see my posts advocating for Traditional instead of Roth, but that isn't a point I want to make now. I just want to say that everybody with a 403b, 457b, 401k, etc. should consider maxing out an IRA (Roth or Traditional) first because they'll have access to the widest array and lowest priced investments.

25 minutes ago, Diosanny said:

I am very interested in lobbying the district for better options.

You may want to read my web site, it documents the plans in my district/state and provides general investing help, but it also documents some of my efforts to reform my district (particularly in my blog section). I just had a pretty major partial success in getting Vanguard/Fidelity added to my district's vendor list. If you want you can send me a direct message and we can chat more off this thread.

...but if you want to lobby these are the first things to know/explore:

  1. Understand exactly why your current vendors are bad.
  2. Understand exactly how the best 403b/457b vendors/plans are structured.
  3. Identify who in the district decides on what plans are added (usually it is a committee).
  4. Identify who the school board members are.
  5. Identify and connect with the vendors you'd like to see added.
  6. Meet with the folks from #3 and #4 and explain the problem, provide them with the solution, and offer all of your help to make it a reality. Be super nice and knowledgeable and do everything you can to reduce the work they'll have to do to as close to zero as possible.

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EdLaFave - I did find your web site and read up on the information you provide. This will definitely be something I will do my best to pursue. 

 

In response to both of your questions earlier, my district does not have 457b plans or employer match. Am I forced to stick with only the authorized vendors?

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2 minutes ago, Diosanny said:

Am I forced to stick with only the authorized vendors?

Unless there are special case loop holes that I"m unaware of, yes you'll have to stick with an authorized vendor.

Also, with respect to the Union endorsing Kades-Margolis, don't take that too seriously because in 403b/457b land Unions are often corrupted and ignorant. I quickly looked at the Kades-Margolis website and I suspect they're a bad choice.  The reason I came to this conclusion is because they seem to have two products: "Money by Design" and "Platinum". They don't specify the fees or any particulars on their website, which usually means they're hiding something. In both plans they talk about requiring a financial adviser, which means the fees will be high. Any time I see something named "platinum" or "elite" or whatever...it indicates that the product is especially bad for investors.

Kades-Margolis may still be the best of the group, I don't know, but it looks like the group is quite bad. Pushing for better vendors and using an IRA seems to be in your best interest.

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39 minutes ago, Diosanny said:

Now I need to do research on IRAs.

IRAs are accounts you open on your own, you deposit money into on your own, and you choose your own investments.

You can contribute up to $5,500 per year to them and if you have a spouse they can also contribute $5,500 per year.

If your IRA is Traditional then you get to deduct your contributions from your taxable income (smaller tax bill each year)...then you pay taxes when you eventually pull the money out.

If your IRA is Roth then you don't deduct your contributions from your taxable income, but you won't pay taxes when you eventually pull the money out.

I strongly recommend opening an IRA with Vanguard, but you can find good options other places as well.

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You've got to find the fee information. If you can buy Vanguard funds, but they charge you a 1.25% yearly fee then it isn't great. Sorry, I'm not sure where to point you to get that data.

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Just in case you hate researching these companies as much as I did, I wanted to throw out a potential (but likely un-useful) alternative.

If you can only afford to invest $5,500 or less per year (or $11,000 if you have a spouse) then for now you can invest exclusively in an IRA account and not worry about digging to find out who your "least bad" 403b vendor is. That will give you time to get the district to add a good vendor...hopefully before you're able to save an amount that exceeds the annual IRA limit.

Similarly, for spouses with financial trust and who comingle their money, if one spouse has a great retirement plan but the other doesn't then they can take most of the money out of one spouse's check to invest in retirement and use most of the money from the other's check to pay bills. So if you had a spouse with a good 401k, 403b, 457b, etc then it might be best to rely on that and forgo your (likely) medicore/bad 403b.

...just a thought that might help you avoid digging through the sludge (it drove me nuts when I did it).

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Another teacher told me to sign up for an IRA and I have been looking into Vanguard. I'm a little confused because I'm not sure how to go about purchasing a fund or plan or whatever the exact term is though.

I am more so digging into each option so that I have the information at hand to share with others. Since it's summer time, I have a lot of free time on my hands haha

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