403(b) help!

[Shannon 0]

Good Morning,

I am an educator and currently researching 403 (b) plans. It is so overwhelming because my district has so many product to choose from. I have been looking at the CalSTRS Pension2 and the Vanguard 403(b). Does anyone have an insight into which product to go with? This is all new to me, so anything i should be "looking for" or anything to "steer away" from? Any insight would be helpful! Below are ALL of my approved vendors. Thanks!

[tony 0]

Fidelity Investments or Vanguard are your best choices obviously. Go index funds or target fund. You have too many choices and this is what confuses teachers. Be aware if you go Vanguard or Fidelity you won't have advisor help but you will have low fees. It's a trade-off.  I would do a Vanguard target fund if available and let Vanguard do the managing for you.

All the comments you will receive here might also confuse you. I say keep it simple. Do a target fund with Vanguard or Fidelity and move on with your life. Every year increase your contribution. By the time you retire, you will have done well.

[Shannon 0]

Thank you so much, Tony! This helps. It confirms with what I have been leaning towards, but felt unsure! Thank you!

[EdLaFave 0]

Let me start by commenting on the big picture:

1. You (and everybody else) can contribute to an IRA, which gives you all the same benefits of a 403b, but with even lower fees. You can contribute up to $5,500 per year.
2. In addition to a 403b, you also probably have access to a 457b. You can contribute $18,500 to each type of account per year. So if you're able to max out your IRA and 403b then you should start investigating your 457b options.

I'll let others comment on the CalSTRS Pension...but if they do make sure you get quantitative answers rather than a generic "it's great" comment.

I am not familiar with every single vendor on that list, but out of all of the vendors I've studied, you have access to the top 3, which are nearly perfect:

1a. Vanguard, which I documented here.
1b. Fidelity, which I documented here.
3. Security Benefit's NEA DirectInvest, which I documented here.

I agree with Tony in that I'd enroll with either Vanguard or Fidelity. I briefly discussed both plans relative to each other here.

I also agree with Tony that an all-in-one fund like a Vanguard Target Date or a Vanguard LifeStrategy is a superior choice for the majority of folks (especially novices). However, you can build a 3 Fund portfolio, which has lower fees and is equivalent to an all-in-one fund (which is 2-3 times as expensive). Since this is all new to you, you may want to read my Investing 101 page, which explains the basics including all-in-one vs 3 fund and picking the "right" amount of bonds vs stock.

[tony 0]

I just would like to know who is the Einstein who allows this many choices to be put on their provider list. This is just another example of how out of control the 403b is. 

[Shannon 0]

@EdLaFaveThank you for your input! I really appreciate it! Ok, so I did check and I do not have access to a 457. I plan to open a 403(b) account with Vanguard, and I would like to also open a Roth IRA and contribute. How do I go about opening a Roth IRA? Is there a certain company your suggest? It is completely separate from the 403 b, correct?

[Shannon 0]

@tonyYeah, it makes it stressful for the everyday person!

[tony 0]

11 minutes ago, Shannon said:

@tonyYeah, it makes it stressful for the everyday person!

Shannon. I don't understand it. I get it that many of these companies send out commisioned salespeople so I get why they want on the list. But school systems/districts need to set limits perhaps down to as little as 5 choices and go with them. Either they themselves don't understand them well enough to distinguish them or they are too lazy and uninterested to do the necessary research.

You would be well served to go with Vanguard or Fidelity and ignoring the rest.  I know you directed the question to Ed but to open an IRA you can do that directly online with Vanguard or Fidelity or you can call them.  Vanguard's website is worth investigating at Vanguard.com. Good luck!!

[EdLaFave 0]

If you're going to have a 403b with Vanguard, it is reasonable that you'd open an IRA with them too (use their website or call them).

[sschullo 0]

Welcome to the forum Shannon.

What tony and ed said is spot on. 

I am retired from LAUSD and I tried for years to get Vanguard on the 403b list, to no avail! We have it on the 457b list now largely because I am on the advisory committee! LOL! 

Just curious, what school district do you work because I would like to know why it has Vanguard, which is very, very rare. 

As the others have said, go with Vanguard, I have almost all of my retirement investments with Vanguard. 

Have a great day,

Steve

 

 

[Shannon 0]

@tonyThe input is much appreciated! Thank you

[Shannon 0]

@EdLaFaveI will do that! Thanks for your time!

[Shannon 0]

@sschulloHi Steve. I am at Temple City Unified. Thanks for the input about Vanguard. I will go with that!

[EdLaFave 0]

40 minutes ago, tony said:

I just would like to know who is the Einstein who allows this many choices to be put on their provider list. This is just another example of how out of control the 403b is. 

I'm ambivalent on this topic.

Clearly the "winning" solution is to have a single vendor (Vanguard or Fidelity) that offers just a core set of funds (total market index funds, target date funds, and maybe fixed allocation funds). The district would then auto-enroll teachers into a target date fund based on their age. They'd have the ability to opt out, select a different investment, or modify the contribution rate...but by default they'd be put on a path to financial success.

The problem with a huge list of vendors is that it overwhelms people, but every district I've seen with a huge list will usually have either Vanguard, Fidelity, or Security benefit so employees have access to elite plans this way.

The problem with a "small" list, let's say 5 vendors, is that in my experience they're often 5 financial predators. So teachers aren't necessarily overwhelmed, but they don't have access to an elite plan either.

...I'd clearly pick the winning solution, but short of that, I think I'd prefer to have a massive vendor list.

[krow36 0]

48 minutes ago, Shannon said:

@EdLaFaveThank you for your input! I really appreciate it! Ok, so I did check and I do not have access to a 457. I plan to open a 403(b) account with Vanguard, and I would like to also open a Roth IRA and contribute. How do I go about opening a Roth IRA? Is there a certain company your suggest? It is completely separate from the 403 b, correct?

Shannon, your district does give you access to a 457 plan in addition to the 403b plan. 

https://www.tcusd.net/site/handlers/filedownload.ashx?moduleinstanceid=152&dataid=5902&FileName=TDS_457-Salary_Reduction_Agreement_20170922.pdf

Unfortunately there are no low-cost providers on the list. If in the future you are able to max out contributions to a Roth IRA and the 403b plan, you could ask your district to add Fidelity and/or CalSTRS Pension2 to the 457 vendor list.