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Patrick

Consolidating existing accounts into a new 403b

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2 hours ago, tony said:

 

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

Thanks again for your help, Tony. I think you and Ed are more or less aligned on the most important questions. I intend to:

- Open an IRA with Vanguard and move my dormant 401k/403b accounts into it

- Open a 403b with Security Benefit (DirectInvest product sounds like the best bet despite how hard it might be to gain access to it)

- Worry about the rest later

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2 hours ago, EdLaFave said:

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.

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

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.

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?

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.

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. 

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. 

I'm going to press on with whatever product Security Benefits offers that gets me somewhere near 50/50 (20 international stocks/30 national/50 bonds) or thereabouts. I'm comfortable with roughly 20-25% of my money riding on the market. You've provided a great service here, and I expect I'll be back tomorrow with a dozen more questions after speaking to the appropriate parties.


Thanks again.

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12 minutes ago, Patrick said:

I'm going to press on with whatever product Security Benefits offers that gets me somewhere near 50/50 (20 international stocks/30 national/50 bonds) or thereabouts. I'm comfortable with roughly 20-25% of my money riding on the market. 

That’s awesome. I’m glad you’re going to end up with a portfolio that reflects your risk tolerance. Your stated asset allocation is very reasonable. 

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Patrick, the IRS does not permit loans from IRAs:

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans#1

I haven't checked the NEA Direct Invest 403b plan yet to see if they allow loans. They do welcome adding retirement accounts from previous employer's plans so consolidation could be done.

It is possible to take a distribution from 401k and 403b plans for educational purposes, if the plan allows it. Have you investigated that? The distribution is taxable buy not penalized the 10% for early withdrawal before age 59.5. 

EDIT It looks like loans are available in the NEA Direct Invest plan. See the Custodial Agreement:  http://www.nearetirementprogram.com/enrollment

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8 minutes ago, krow36 said:

Patrick, the IRS does not permit loans from IRAs:

https://www.irs.gov/retirement-plans/retirement-plans-faqs-regarding-loans#1

I haven't checked the NEA Direct Invest 403b plan yet to see if they allow loans. They do welcome adding retirement accounts from previous employer's plans so consolidation could be done.

It is possible to take a distribution from 401k and 403b plans for educational purposes, if the plan allows it. Have you investigated that? The distribution is taxable buy not penalized the 10% for early withdrawal before age 59.5. 

EDIT It looks like loans are available in the NEA Direct Invest plan. See the Custodial Agreement:  http://www.nearetirementprogram.com/enrollment

Ah, that's important information, thank you! I was under the impression that I could borrow against the IRA; if I cannot, that changes things. I can probably cover >50% of my education expenses out of pocket. Perhaps a student loan for the rest is in order, but I believe I would not be able to start paying it back until I'm out of school (and the interest is accruing during that same period).

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Patrick

 Patrick please don't borrow from your retirement funds, its a bad idea. Also have you approached your district for reimbursement of your class expenses ? I know our school system did for folks taking graduate and doctoral classes. That might fill the money gap somewhat. They might do that.

This might be useful concerning borrowing from an IRA:

https://www.investopedia.com/ask/answers/082515/can-i-use-my-ira-pay-my-college-loans.asp

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IRAs can't be borrowed from, but your can take a distribution from them for education expenses that avoids the early-distribution penalty of 10%. Loans from 401k's and 403b's are possible, as well as penalty-free distributions for education expenses, as I mentioned. The distributions add to your taxable income of course.

I agree with Ed about stopping contributions to retirement accounts to help fund your degree. I agree with Tony that loans from your retirement accounts is a bad idea. You should leave them alone to grow.

Taking out student loans may make sense if your sure you'll be able to pay them back. Please research them out first. I know next to nothing about them except what I read in the NY Times, and that's a bit scary. 

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Hi everyone,

I wanted to circle back to share my experiences up to this point; I hope you don’t mind the bump. I took the terrific advice offered and used Nicole from Vanguard to roll my existing retirement accounts into a traditional IRA. I did not end up opening a 403b at my workplace because a) I needed money to pay for my education, and b) another opportunity presented itself and I will be starting there on July 1.

Which brings me full circle, as I once again am faced with choosing a 403b provider from suboptimal options. Neither Vanguard nor Fidelity is an option, and, having read much of the EFF website, I know those are the best. I'm left with the following choices, many of which are:

I’ve read through the EFF site and none of these options are on the good list; only AXA and Voya made the bad list. Aspire was mentioned as one of the better options in Florida, but I’m not sure that holds true in New York, where I am.

Do any options on that list look decent? Any help you can offer is appreciated.

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I have no experience with Aspire, but I have seen it mentioned on these forums as having relatively decent options.  I would investigate them, first.  (Hopefully someone familiar with Aspire will jump in here to offer a bit of guidance.)

Most of that list can be quickly eliminated from consideration: for starters, cross off all of the insurance companies.

There are a few names I don't recognize (GWN, for example), but unfortunately so many of the providers in that industry are high-fee (and worse) I think you need to presume them guilty unless shown otherwise.

You might also want to ask whether you have different options available if you open a 457b account.  It is also good to find out whether your state makes some kind of defined-contribution retirement savings plan available to you inside a 457 or 403b account--those state plans are often excellent, but not all states have them.

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I want to second what whyme said about 457b plans and state sponsored plans.

I’m not familiar with every vendor on your list, but I strongly suspect Aspire is your best option. I’ve rated it the 4th best plan that I’ve studied.

Read about Aspire here. You can build a fully diversified portfolio for 0.21%. That isn’t the best plan out there but it is somewhere between reasonable and good. Over 30 years that 0.21% fee consumes (approximately) 9% of real returns...since you switch jobs from time to time, you’ll likely give up much less to fees.

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I found this NY state 457 plan: https://www.nysdcp.com/iApp/tcm/nysdcp/about/index.jsp

They have some ultra low cost passive options (this is a good thing!) amid some higher priced funds.  If you stick with the "New York State Deferred Compensation Board Equity Index" funds, you'll be in a great situation.  (ER on their broad market funds are as low as 0.01%, absolute rock bottom cost.)

I haven't looked deeply enough to know whether there are additional fees attached, but I would definitely check whether I was eligible for this, were I in your position.

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The 457b plans are always the place to look first if possible. More and more states are actually looking after their employees by offering tremendous low cost options. In my state of Virginia I had the state 457b plan added to our vendor list and it was easy as pie to do but no one is our school system thought that we could adopt it. There are usually minimal administration fees. But the fund expense ratios of their funds are so low that it s a minimal expense. Not every 457b plan is great however but its encouraging to see things moving in the right direction.

Aspire is a decent enough choice and superior to anything on your list. IF you self direct  your account and don't use an advisor and you self direct the account into a low expense ratio fund . Thats the key with using Aspire-you must self direct your account to make the relationship advantageous..

I do not understand why 457B plans seem to be improving  while the 403b remains a cesspool of bad choices.

Patrick, I  am glad you made contact with Nicole Jackson at Vanguard. She is very competent with fantastic follow through. I hope she still works there. Not every customer service rep is great.

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Patrick,

Congratulations on your new opportunity. If you do end up using Aspire you have two options. One is to self-direct, which is very possible and you can read it here how that's done optimally. The other is to use one of their approved FA's which is searchable using your zip code. The key is identifying the "right" one because some "wrong" ones can and do fall through the cracks. I found the right FA who offers a managed portfolio comprised of low-cost index funds, set up to mirror a target date fund and the total fees are 0.64%, unheard of in the industry. All that through the Aspire platform which adds the annual fee of $40 pus their 0.15 basis points. That is the least expensive managed option I have found if you choose to invest in index funds and cannot directly invest with Vanguard or Fidelity or Security Benefit's DirectInvest. 

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I just wanted to add a bit of context.

Fidelity allows you to build a fully diversified portfolio for 0.03% (or 0% if we’re talking outside of a 403b/457b). Vanguard does the same for 0.06%. In my opinion anybody charging more than 2-3x those rates is clearly taking advantage of you.

It is true that some folks have been charged 30x those rates, but that shouldn’t excuse less severe price gouging. We wouldn’t happily accept a 2-3x markup on any other product...I see people curse when gas goes up by 0.5x. 

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Moemoney , you seem to get a better deal using an Aspire  Advisor than I would have ever gotten with Aspire. Here in my zip code using an advisor with Aspire would cost us 1% plus the cost of the fund plus the 40$ annual fee plus their .15 administration fee. Maybe things have change as I've been out of the loop for  a while. I totally understand some folks value using an advisor when making financial decisions. I get that completely as long as they get the right kind.

 

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