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Patrick

Consolidating existing accounts into a new 403b

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Hi everyone,

Finding this board was like finding water in the desert. I hope you smart people can provide me with some clarity.

I'm a 40 year old school district administrator in New York with access to a 403b through the Omni Group. I also have several other retirement accounts with former employers:

20k in an ADP 401k

10k in a Securian 401k

50k in a TIAA-CREF 403b

I'd like to do the following:

- Consolidate these accounts into the one new account

- Use some of the money in these accounts to pay for my doctoral classes

OMNI is listing the following service providers as options for me:

- American Century Services

- American Financial Services

- Aspire Financial Services

- AXA Equitable Life Insurance Co.

- GWN/Employee Deposit Account

- Lincoln Investment Planning

- MetLife

- Mutual Inc Planmember Services

- NY Life Insurance and Annuity Corp

- Oppenheimer Shareholder Services

- Security Benefit

- The Legend Group/Adserv

- Valic

- Voya Financial

 

From my reading here, I've learned that Vanguard and Fidelity are the gold standards, and I unfortunately do not have access to either. However I've also seen positive things written about Security Benefit, so I am leaning that way. So I have several questions I hope you can help with:

- Is it feasible to move all of the above accounts into one 403b?

- Will I pay penalties for doing so?

- Will I be able to take a loan out of the new 403b quickly if I move all the above funds into it?

- Which of the plans I listed do you recommend?

- Do you have specific recommendations for someone who is 40 but new to public ed as to how he or she should invest?

Apologies for the length of the post, but I really do feel like this board presents some light at the end of a long, confusing tunnel.

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33 minutes ago, Patrick said:

Is it feasible to move all of the above accounts into one 403b? If these are former employers why not roll these accounts into an IRA and consolidate that way. You can then choose Fidelity or Vanguard. It's so easy and much cheaper with less headaches. 

- Will I pay penalties for doing so? Only if they are insurance companies. Chances are they are clear of surrender charges by now. But Check. 

- Will I be able to take a loan out of the new 403b quickly if I move all the above funds into it? It depends if your current 403b plan document allows it. IF YOU HAVE ANY ROTH ACCOUNTS, YOU CAN USE THAT MONEY for educational expenses I believe much like a 529 plan otherwise pulling money from your other accounts will( IRS)  cost you unless they allow you to borrow from them. Read the details of what your new employer plan allows. Some employer plans do allow you to borrow money but you must eventually pay it back or incur IRS fines-

Which of the plans I listed do you recommend? Security Benefit-Direct Invest, ASpire, Lincoln Investment Planning are your best three choices. Make sure you go self-direct option only.

- Do you have specific recommendations for someone who is 40 but new to public ed as to how he or she should invest? Read the article I just posted. A crazy easy portfolio. I hope I have helped.

Welcome to the forum and to public education. It's good that you are addressing your financial situation early in your new career. 

 

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11 minutes ago, tony said:

 

Thank you, Tony, for your response. I appreciate it. I will look into rolling the older accounts into an IRA. I think if I rollover into a Roth IRA, I have to pay taxes on the money, which does not seem ideal. Do you recommend a regular IRA? I do not currently have any Roth accounts, only the ones I listed in the original post. I have no experience with this sort of thing, so I'm guessing I should be calling the administrators of these older accounts to get started.

I've got the 3 Fund Portfolio link open as we speak. Looks ideal for someone looking for consistent returns and limited appetite for big risk. I'm leaning towards Security Benefit. I'm trying to pay for my schooling without student loans, which have higher rates and more complex rules regarding repayment than most 403b loans, but perhaps this is misguided.

 

 

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Yes

I would not roll it over to a Roth unless it's already a Roth account. You will be penalized by IRS. Move tax-deferred money into a traditional IRA.  Much depends on how much money we are talking about. If it is not much and you need the money then maybe you can take the tax hit on one of the accounts and transfer the rest to a Traditional account. I believe its a 10% penalty for early withdrawal before retirement plus it will be taxed as income. Its a bad situation.If I were you i would most likely try to avoid any taxable events. Perhaps you can pay for your education as you go since you are employed.  Transferring these accounts can be a headache. You will need paperwork from both sides filled out but call Vanguard first if you go the IRA route which I recommend. They will get it all going for you and will speed up the process.

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<nicole_jackson@vcs.vanguard.com>

If you can get hold of this person at Vanguard she will make the process easy for you. Trust me. See if you can deal with this person.

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3 minutes ago, tony said:

<nicole_jackson@vcs.vanguard.com>

If you can get hold of this person at Vanguard she will make the process easy for you. Trust me. See if you can deal with this person.

I guess I'm not following how this works. Vanguard is not one of my 403b options, but I can use them for an IRA? I thought my new employer was limiting me to one of the service providers on the list I shared.

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Since you are no longer with those past  employers, you can roll it over to a Traditional IRA with Vanguard. You will then be free to choose any fund you wish with no 403b like restrictions and lower fees. I have done this myself. Its a smart move.Call Nicole and she will do much of the heavy lifting for you. I would not roll the old money into a new 403b with your current employer. IMHO that would be a mistake. Now for new money going forward, you can either go the 403b  with your new employer if you chose the three best options mentioned or if you are not planning to invest big bucks you may just do a Roth IRA and stay away from the 403b altogether. You can put $5,500 a year in a Roth account and this money will be tax free on retirement.  This might help https://www.goodfinancialcents.com/how-rollover-403b-into-traditional-ira-tax-sheltered-annuity/

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This might be a good article to read as well. Keep your questions coming and we'll answer them. I believe everything I told you is correct .   Be careful seeking advice from financial advisors. Some are commissioned salespeople so their advice is biased in their favor.

 

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Patrick

I looked closer at your post. It looks like you are not in any annuity-insurance products so you should be able to transfer all that money into a traditional IRA . I am assuming all your accounts are tax-advantaged accounts. Also thats a significant amount of money so you  would not want to transfer any of it into a Roth because you will incur huge tax penalties.

I want to reiterate YOU DO NOT HAVE TO MOVE THIS OLD MONEY INTO YOUR NEW EMPLOYER 403b!!! SO WHY WOULD YOU?? 403b's are inferior in options to an IRA.

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3 hours ago, Patrick said:

Is it feasible to move all of the above accounts into one 403b?

think the IRS allows you to rollover old 401k (and 403b) accounts to your new 403b. However, you may not find that to be optimal because:

1. You could roll it over to an IRA where you’ll have access to the best funds at the lowest costs.

2. You’ll be subjected to the whims of your employer. At any point they could decide to get rid of every reasonable vendor and go with only high cost vendors. This perhaps isn’t likely, but I’ve certainly read threads where it happened.

SecuirtyBenefit waives their $35/year fee if you exceed $50,000 so rolling it over to a 403b might help you get there sooner  However, I think they also charge an extra 0.01% more per fund. So these are conflicting forces that need to be quantified over time.

If you rollover to a Traditional IRA then it may make doing a fancy maneuver called a Backdoor Roth less desirable.

I’ve always rolled over my old employer accounts to an IRA. 

3 hours ago, Patrick said:

Will I pay penalties for doing so?

If you do something like roll a Traditional 403b into a Roth 403b that’ll increase your taxable income for the year and cause you to owe more in taxes.

It may also be the case that your 403b has surrender fees associated with it, but every case I’ve seen it is worth it to pay the surrender fees because the annual fees are so high. However, sometimes it is worth waiting...for example if the surrender fee is set to expire next month, but it isn’t worth waiting a long time  

In reality you may pay lower fees by doing a rollover. It is often the case that your employer subsidizes your retirement account and that subsidy ends when you quit. So by rolling the account over, you may be escaping a fee that you may not have realized you were paying.

3 hours ago, Patrick said:

Will I be able to take a loan out of the new 403b quickly if I move all the above funds into it?

I won’t comment on taking loans against retirement accounts except to say it intuitively feels like a bad idea.

If it is possible to temporarily stop contributing to your retirement accounts and use that extra money to pay for tuition then that might be desirable. Also, if it is possible to get loans where interest doesn’t begin until graduation then that may give you flexibility.

...just ideas to explore.

3 hours ago, Patrick said:

Which of the plans I listed do you recommend?

The best plan you have is Security Benefit’s DirectInvest, which I documented here. Just be careful because they’re an unethical company and may try to steer you towards enrolling in a bad plan. You can read about our story when enrolling here as well as the steps we went through to enroll here.

Your second best plan is Aspire, which I documented here

There were some vendors I wasn’t familiar with and Lincoln may have a self directed plan (called PDP) for you to investigate, but it is only available in some areas. 

3 hours ago, Patrick said:

Do you have specific recommendations for someone who is 40 but new to public ed as to how he or she should invest?

My only advice for teachers is to beware of 403b/457b vendors, annuities are dangerous, and know that you can put $18,500 into each account type per year...37k per year.

My advice for somebody who is 40 (or any age really) is to pick a stock/bond mix that is appropriate for your risk tolerance.

You may want to read my investing 101 page if you’re looking for the fundamentals.

2 hours ago, Patrick said:

Do you recommend a regular IRA? 

I think Traditional IRAs are optimal for the vast majority of people because I believe it will result in them paying less in taxes. You can read the case for this opinion here

 

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1 hour ago, tony said:

Patrick

I looked closer at your post. It looks like you are not in any annuity-insurance products so you should be able to transfer all that money into a traditional IRA . I am assuming all your accounts are tax-advantaged accounts. Also thats a significant amount of money so you  would not want to transfer any of it into a Roth because you will incur huge tax penalties.

I want to reiterate YOU DO NOT HAVE TO MOVE THIS OLD MONEY INTO YOUR NEW EMPLOYER 403b!!! SO WHY WOULD YOU?? 403b's are inferior in options to an IRA.

I just read the link Ed posted regarding IRAs, and it definitely sounds like a traditional IRA is better than a Roth IRA for my purposes. I do intend to contribute less to my retirement accounts while I work on the doctorate, but I'm at Johns Hopkins, and it ain't cheap, so I'm either going to have to eventually take a student loan or pay out of my retirement accounts.

5 minutes ago, EdLaFave said:

think the IRS allows you to rollover old 401k (and 403b) accounts to your new 403b. However, you may not find that to be optimal because:

1. You could roll it over to an IRA where you’ll have access to the best funds at the lowest costs.

2. You’ll be subjected to the whims of your employer. At any point they could decide to get rid of every reasonable vendor and go with only high cost vendors. This perhaps isn’t likely, but I’ve certainly read threads where it happened.

SecuirtyBenefit waives their $35/year fee if you exceed $50,000 so rolling it over to a 403b might help you get there sooner  However, I think they also charge an extra 0.01% more per fund. So these are conflicting forces that need to be quantified over time.

If you rollover to a Traditional IRA then it may make doing a fancy maneuver called a Backdoor Roth less desirable.

I’ve always rolled over my old employer accounts to an IRA. 

If you do something like roll a Traditional 403b into a Roth 403b that’ll increase your taxable income for the year and cause you to owe more in taxes.

It may also be the case that your 403b has surrender fees associated with it, but every case I’ve seen it is worth it to pay the surrender fees because the annual fees are so high. However, sometimes it is worth waiting...for example if the surrender fee is set to expire next month, but it isn’t worth waiting a long time  

In reality you may pay lower fees by doing a rollover. It is often the case that your employer subsidizes your retirement account and that subsidy ends when you quit. So by rolling the account over, you may be escaping a fee that you may not have realized you were paying.

I won’t comment on taking loans against retirement accounts except to say it intuitively feels like a bad idea.

If it is possible to temporarily stop contributing to your retirement accounts and use that extra money to pay for tuition then that might be desirable. Also, if it is possible to get loans where interest doesn’t begin until graduation then that may give you flexibility.

...just ideas to explore.

The best plan you have is Security Benefit’s DirectInvest, which I documented here. Just be careful because they’re an unethical company and may try to steer you towards enrolling in a bad plan. You can read about our story when enrolling here as well as the steps we went through to enroll here.

Your second best plan is Aspire, which I documented here

There were some vendors I wasn’t familiar with and Lincoln may have a self directed plan (called PDP) for you to investigate, but it is only available in some areas. 

My only advice for teachers is to beware of 403b/457b vendors, annuities are dangerous, and know that you can put $18,500 into each account type per year...37k per year.

My advice for somebody who is 40 (or any age really) is to pick a stock/bond mix that is appropriate for your risk tolerance.

You may want to read my investing 101 page if you’re looking for the fundamentals.

I think Traditional IRAs are optimal for the vast majority of people because I believe it will result in them paying less in taxes. You can read the case for this opinion here

 

This is helpful, and I read all the linked articles/posts. I'm going to press forward with Security Benefit. Keep in mind that I'm a systems engineer/tier 4 tech director who has moved freely from the private sector to public education, not a teacher. I'll probably move again at some point, so if my transience influences your recommendations, let me know.

Is establishing this IRA a simple matter of calling the Vanguard rep Tony shared? Is it disconnected from my employer entirely? And I've seen several references to 457b's, but those don't seem to be provided as an option anywhere on Omni's site, so I'm not sure how they're related to any of this.

Your post indicates that you went with the three fund Vanguard with the following allocations:
* Assumes the following allocation:
    * 52.5% domestic stocks.
    * 22.5% international stocks.
    * 25% bonds.

For the time being, I'm just going with that.

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52 minutes ago, Patrick said:

if my transience influences your recommendations, let me know.

This new information makes rolling over to a 403b less risky because you won’t be there too long, but I still find the slightly lower costs of an IRA appealing.

One thing to keep in mind if you’re moving from job to job is that it makes expensive retirement plans more viable because you’ll only have to pay the fees for a short time before rolling over to a low cost IRA.

It’s common for people, especially teachers planning to work in the same district for decades, to ask if their expensive 401k/403b/457b is worth the tax break. You’ll have an advantage in these scenarios. 

52 minutes ago, Patrick said:

Is establishing this IRA a simple matter of calling the Vanguard rep Tony shared? Is it disconnected from my employer entirely?

IRA = individual retirement account. So it is entirely up to you to open, fund, and manage the account without any tie to your employer. The employer is tied to accounts like 401k, 403b, 457b, etc because the only way you can invest in them is by your employer deducting money from your pay and putting it in the account.

I don’t know Tony’s rep but probably. I think you can open an account from their website or by calling. 

52 minutes ago, Patrick said:

And I've seen several references to 457b's, but those don't seem to be provided as an option anywhere on Omni's site, so I'm not sure how they're related to any of this.

A 457b is another tax advantaged account that is very similar to a 403b, but has some slightly different rules. Often times the same financial institutions that offer 403bs also offer 457bs. In any given year you can contribute $18,500 to a 457b and another $18,500 to a 403b.

Most teachers have access to both types of accounts. Other government workers have access to only one...you may fall into that case, but find out for sure.

52 minutes ago, Patrick said:

Your post indicates that you went with the three fund Vanguard with the following allocations:
* Assumes the following allocation:
    * 52.5% domestic stocks.
    * 22.5% international stocks.
    * 25% bonds.

 For the time being, I'm just going with that.

That is a reasonable portfolio for what I think is a typical worker. However, aside from my emergency fund, which is 100% in bonds, I have a 100% stock portfolio.

On a side note, for people in my circumstances I think an emergency fund is a sub-optimal result of mental accounting. In my case it’s an artifact from the past when I truly couldn’t afford to have a chunk of money disappear. I should probably get rid of it, but I move slowly when making financial changes  

If you have 25% bonds then your portfolio might drop by 37.5% during the next crash. If that reflects your risk tolerance then great!

When it comes to asset allocation, don’t make the mistake of thinking each account has to reflect your asset allocation. It is the summation of all of your accounts that must reflect your asset allocation. I wrote a blog post on investing and marriage that briefly and indirectly highlights why this is best. 

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7 minutes ago, EdLaFave said:

This new information makes rolling over to a 403b less risky because you won’t be there too long, but I still find the slightly lower costs of an IRA appealing.

One thing to keep in mind if you’re moving from job to job is that it makes expensive retirement plans more viable because you’ll only have to pay the fees for a short time before rolling over to a low cost IRA.

It’s common for people, especially teachers planning to work in the same district for decades, to ask if their expensive 401k/403b/457b is worth the tax break. You’ll have an advantage in these scenarios. 

IRA = individual retirement account. So it is entirely up to you to open, fund, and manage the account without any tie to your employer. The employer is tied to accounts like 401k, 403b, 457b, etc because the only way you can invest in them is by your employer deducting money from your pay and putting it in the account.

I don’t know Tony’s rep but probably. I think you can open an account from their website or by calling. 

A 457b is another tax advantaged account that is very similar to a 403b, but has some slightly different rules. Often times the same financial institutions that offer 403bs also offer 457bs. In any given year you can contribute $18,500 to a 457b and another $18,500 to a 403b.

Most teachers have access to both types of accounts. Other government workers have access to only one...you may fall into that case, but find out for sure.

That is a reasonable portfolio for what I think is a typical worker. However, aside from an emergency fund which is 100% in bonds, I have a 100% stock portfolio.

If you have 25% bonds then your portfolio might drop by 37.5% during the next crash. If that reflects your risk tolerance then great!

When it comes to asset allocation, don’t make the mistake of thinking each account has to reflect your asset allocation. It is the summation of all of your accounts that must reflect your asset allocation. I wrote a blog post on investing and marriage that briefly and indirectly highlights why this is best. 

This is great to learn, but it's also a nesting doll of complex options and new information I don't really understand. I think from the sound of it, the IRA still makes the most sense for me. I'm most interested in flexibility and the return.

I've contacted someone in my business office for clarity on my 457 options. Is there generally a benefit to using one vs. the other? Since I'm paying down school bills at the moment, I'm not able to contribute to two simultaneously at the maximum level. Is there any reason to use both?

I don't think losing almost 40% of my portfolio is reflective of my risk tolerance. It seems like some bubbles may burst in the next 12-18 months, so I actually thought bonds would limit my risk vs. stocks. That is apparently not the case.

I hear what you're saying, but I really don't have a plethora of retirement accounts; I'm trying to get informed enough to set up one good one, then move the money I have sitting in old accounts into one other account. It has quite literally never occurred to me to have an emergency fund beyond my savings accounts, let alone a 100% bond only emergency account. I guess that would entail setting up another IRA? 

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1 hour ago, EdLaFave said:

I don’t know Tony’s rep but probably. I think you can open an account from their website or by calling. 

Patrick, this will be my last comment because too much information can get confusing especially when it comes from different people giving slightly different takes on your situation. 

If you make contact with the individual I mentioned ( you can call and ask for her ) it will make the process much easier. She is a retirement specialist and she was very good at making things happen for me when we needed help. I thought she was better than the average rep. If you can't reach her then you may get someone else. Based on my experience I would avoid trying to do this alone online. It can be confusing if you are not sure what you are doing. 

I want to reiterate that the 403b is a lousy retirement vehicle for many reasons.T he only advantages that I see is the employer monthly auto deduction makes it easier to save. Otherwise, it stinks for most educators. You would be better off getting all your old accounts into a Vanguard IRA. Then I would do a Roth IRA with all new money and after that, I would do your employer's 403b with Security Benefit.  That's what I would do in your shoes. The allocations you choose is up to you and several examples exist in Ed's comments and the articles posted. I've been dealing with this stuff for thirty years plus and I have all the battle wounds associated with making mistakes dealing with 403b products. You never hear anyone moan and groan about IRA's.

 

Good Luck.  Let us know how you proceed

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42 minutes ago, Patrick said:

This is great to learn, but it's also a nesting doll of complex options and new information I don't really understand. 

Take your time. Ask questions. Come back much later and reread the thread. No rush.

A lot has been said but if you grasp the concepts in the Investing 101 page I linked to earlier, then you’re in great shape.

42 minutes ago, Patrick said:

I think from the sound of it, the IRA still makes the most sense for me.

I agree. That is the decision I’ve made in the past. 

42 minutes ago, Patrick said:

Is there generally a benefit to using one vs. the other?

I’m not an expert on this. Give it a google.

I believe with a 457b you can withdraw from it at any age without having to pay a fee as you would in a 403b or 401k. However, if we are talking about early retirement then I believe you can withdraw from those other accounts fee free too. So this is more of an irregular/emergency situation issue.

The two accounts are so similar that a lot of people will simply pick the one with lower fees.

42 minutes ago, Patrick said:

Is there any reason to use both?

Not really. Maybe you want to have a little money in the 457b to take advantage of the penalty free withdraw perk, but you want the rest in the 403b because it has lower fees and better investment options?

42 minutes ago, Patrick said:

I don't think losing almost 40% of my portfolio is reflective of my risk tolerance.

This is the single most important choice you will ever make. So take your time with it and try to honestly evaluate your relationship to money. Stocks have higher expected returns but they will repeatedly have huge drops. You need to be able to sleep through the night and not panic sell when that happens.

Divide a stock percentage by half and that is a rough estimate for how much your portfolio will drop in a crash. Pick a percentage you can financially and emotionally afford and know that the fewer stocks the lower the expected return.

42 minutes ago, Patrick said:

It seems like some bubbles may burst in the next 12-18 months

This is the most dangerous thing that can happen in the mind of the investor. We all have to intellectually accept the fact that we cannot predict anything at any time...especially not in a time frame measured in months or years. Maybe decades but nothing less. Then we have to acknowledge the reality that our emotions will keep telling us that we can predict things. We have to promise ourselves to ignore our emotions.

Pick a bond percentage that makes you feel secure. Invest in total market index funds. Stick to the plan. Write down your predictions in concrete terms as you just did and then look back years later to see how you were so often wrong. If you look in my post history, you’ll see I emotionally predicted a recession in January. I was wrong but I ignored my emotions and kept investing so I won. 

42 minutes ago, Patrick said:

It has quite literally never occurred to me to have an emergency fund beyond my savings accounts, let alone a 100% bond only emergency account. I guess that would entail setting up another IRA? 

It is reasonable to have an emergency fund in a high interest savings account. Some people buy CDs. Other people hold bonds in an investment account (taxable, IRA, 403b, whatever). It is up to you. It doesn’t really matter that much. 

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