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tnewin

AXA 403b Rollover and Mass Mutual 457b Questions

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Hello,

I’m a 44-year-old teacher located in California.  I have an AXA 403b worth about 100k that I opened up fifteen years ago and stopped contributing to two years ago. I have an Oppenheimer 403b account currently valued at 4k.  I opened this account under the guidance of a financial planner who was also my tax guy. Even though these two accounts have higher than average fees, I’m glad I put some money into retirement.    Two years ago I opened up a 403b account with Vanguard. That account has about 12k in it. I currently have a Roth IRA with Vanguard and max that out every year.

How do I decide if I should roll over my Axa 403b and/or my Oppenheimer 403b account into my Vanguard 403b?  I talked to my AXA advisor and he said that I should the funds already placed on AXA because I paid the bulk of the fees upfront. Is this true? My advisor wouldn’t give me a straight answer on how much I pay for fees and I don’t know how to look that up on my statements. My advisor also said that he does not get paid since I no longer contribute to my AXA account. Should I just pay the surrender charges on my AXA account and be done with it? Should I wait until there are no surrender charges to rollover my AXA account?  

I recently learned that I can also contribute to a 457plan. The 457 plan was appealing to me as if I end my employment with my district, I can withdraw money and pay taxes on the withdrawal while avoiding the 10% penalty.  I'm hoping to reach retirement age before I withdraw from my retirement accounts, however, two of my brothers passed before the age of 40 and I want to be able to access my money penalty-free if I ever need to.

Mass Mutual is the only vendor that offers a 457 though my district.   In order to open an account with Mass Mutual, I need to meet with one of their advisors. What questions should I ask? How do I find out about fees and expense ratios for their products? If Mass Mutual has high fees, how do I petition my school district to add more vendors and which vendors should I suggest and why? I asked my payroll manager about having other vendors added to the list of 457b plans and was told that it was not possible. 

Should I contribute to both my Vanguard 403b and a Mass Mutual 457b account? In two years, I'm hoping to be able to put about 20k a year into my retirement plans. 

Sorry if these questions are elementary.  I'm new to this whole finance thing and It's like a foreign language to me.

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Your questions are far from elementary and many people find themselves in the same quandry.

I would say absolutely take the surrender fee (if any)and transfer every last penny you have into a Vanguard 403b !!. I really don't care about your Advisor guy and what he says. Most of it is rubbish and self -serving advice thats not in your best interest. He is looking after himself. While he is telling you you payed most of your fees upfront , that is simply not true.Did you pay upfront Loads?  If you did you got hit twice.Your expense ratio keeps pounding you for as long as you own those funds and the cost only goes up as you accumulate more assetts. GET OUT NOW.  I would stay away from your 457B if its littered with insurance companies. Are you maxing out your 403B? Wife?  Does the wife work?

If you already have Vanguard you already have a good choice on your vendor list. As far as your 457B can you share the choices? The fact Mass Mutual oversees it is NOT a good sign.  Your payroll manager is probably lacking the knowledge to right out tell you that you cannot add better choices to your 457 plan. She is a low person on the totem pole. Go higher and ask questions. You should be able to go online to check your 457b fees but if they are not clearly stated THAT'S ANOTHER RED FLAG.

So

1. Max out your Vanguard 403b

2. Contribute to a Roth IRA through Vanguard(or possibly Fidelity-index funds only) If you are married wife can contribute too) You are doing that by what about wife?

3. Avoid  commisioned advisors . Don't believe what they tell you. Their interests are not aligned with yours!!!!

4. See if you have a state sponsored 457 that could be added to your provider list. It may be possible. Bypass your payroll person.

5. The fact Mass Mutual runs the 457 is not a good sign but please share your choices plus stated fees so we can take a closer look

If you need info on how to Transfer to Vanguard. i can help with that. Just ask

 

Also since you from California, someone like Steve Schullo can probably have better details on options since he is very familiar with how California school plans work. You may hear from him.

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P.S

One other thing. If you max out your 403b, have an IRA account that you max out, perhaps you should avoid a bad 457 plan and just invest in Taxable accounts in a very low fee fund like Vanguard or Fidelity index funds. That way you have more control over fees. Just know Taxable accounts work differently than retirement account investments.

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Let me know if I missed any topics/questions...

1. What should you do about your previous 403b accounts?

Unfortunately, you don't know the exact yearly fees you're being charged. I documented the plan AXA offers OCPS (FL) here and the annual fees are very high. I haven't personally studied Oppenheimer, but 403bCompare indicates their fees are very high too.

When deciding if you should rollover those old accounts, the question to ask is, "Where can I build a fully diversified portfolio for the lowest annual fees and is the fixed cost of leaving worth getting the lowest annual fees?"

Let's start with the second part of that question first, I've never seen a surrender fee high enough (because they also come with very high annual fees) to justify staying with the old accounts for any length of time. The only exception I can imagine is if the vendor waives surrender fees when you retire or switch districts and you're planning on doing that soon.

Vanguard is arguably the best 403b available in the US (Fidelity is the only competition), I documented Vanguard's plan here. Since you already have the Vanguard 403b, you're already paying the fixed $60/year fee so I see no reason you shouldn't rollover your old 403bs to that account. If the old 403bs were from a previous employer/district you also have the option to roll them over to an IRA, but I don't see that as advantageous since you already have that Vanguard 403b.

Now comes the question of when you should perform the rollover. You may want to take the time to understand your plans' Surrender Fee Schedule. They'll charge you a percentage to leave, but often times that percentage gets reduced at fixed intervals. So if you can save 1% on the surrender fee by waiting a couple weeks, then wait. Otherwise, you can leave right away. Or if you don't want to even bother dealing with an investigation, just leave right away regardless.

2. Roth vs Traditional

You didn't explicitly ask about this, but I believe Traditional accounts are better for most people. Later on when you have more free time, you may want to consider reading this.

3. Is a 457b advantageous for retiring early?

I plan to "FIRE" so I know a bit about that life. When you retire you can withdraw money from your retirement accounts (401k, 403b, etc) without paying a penalty if you use Rule 72(t). We can really get into the weeds with discussions surrounding retiring early (I like that topic a lot), but for now suffice to say that you don't need to use a 457b for this purpose.

4. What about the Mass Mutual 457b.

You need to be a bulldog in drilling them about fees. Ask them to list, in writing, every fixed fee (annual, transaction, etc), every annual fee, and every other fee (like surrender fees). I can basically guarantee you're going to be paying a lot to use their 457b. Good luck.

5. How do you get another vendor on your 457b.

Well first make sure the Mass Mutual is the only vendor and make sure there isn't a state-sponsored 457b.

I was able to get Vanguard and Fidelity (those are the vendor's you'll want and you already have one!) added to my district's vendor list. You can read some posts from my blog about some of the things I did during this journey. If you search my post history then you'll find me giving advice to folks trying to do the same thing and I can help you through the process and share lessons learned.

Whoever told you they can't add vendors is wrong. The school district has total control over who is on the vendor list.

6. What accounts should you use?

Definitely max out your IRA and Vanguard 403b. Whether or not you should use the Mass Mutual 457b depends on how expensive it is and how long you plan to remain employed at your district. A taxable account is the alternative.

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Hi Thewin,

Welcome to the forum. You know more than you think. I agree with all that Tony and Ed already said.

What I would add and what you can do right now is start contributing to Pension2 from CalSTRS. Here is the link: https://www.calstrs.com/pension2  Call them up and tell them what district you work in and they will tell you if it is available to you. Trust nobody else except Vanguard and CalSTRS Pension2 people. 

We have all been where you are at. In fact, I was in a worse situation than you with two horrible fixed annuities. I was a little older than you when I paid $6000 in surrender fees to get out, and I am soooo happy I got out.  Made it up in real investments, stocks and bonds index funds. 

Steve

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Tony, EdLaFav, and Steve, you have all been very helpful. Thank you for such a quick response.   

So here is my plan, I'll continue to max out on my Roth IRA with Vanguard, and put as much money as I can afford into my 403b with Vanguard or CalSTRS Pension 2  as possible with the hopes of reaching the maximum annual amount maxing out in a year or two at the latest.  

Here are the things I need to do, I need to call or email AXA and find out how much I will pay in surrender fees when I transfer my funds. I also need to learn more about this Rule 72(t). I had not even considered putting money a taxable account with low fees.  I'm not financially knowledgeable on taxable accounts to even know where to start, but I probably won't be able to max out on my taxable accounts for another year or two, so I have time to learn.  Do any of you have recommendations on books or websites to learn more about taxable accounts?  

Tony, Mass Mutual is currently the only available 475b vendor approved by my district. (Stockton Unified) and 37 approved 403b. https://www.stocktonusd.net/cms/lib/CA01902791/Centricity/Domain/317/APPROVED 403b VENDORS 3.2.2018.pdf. I'm single and I don't have children. I don't max out my 403b currently, but I hope to do so soon. I am going to try to roll over my AXA account on my own, but if I need help, I know who to reach out to!

Ed, at age 44, with a net worth of less than 200k, is it even possible for me to FIRE?  At this point in time, I feel like I'm behind financially. Although in talking to co-workers about retirement, some are relying on their pension and have not contributed to a retirement fund. At this point in time, I'm trying to catch up financially and put myself in a position to be able to live comfortably if become disabled.  I also need to read up on Roth vs. Traditional. 

Steve, I have a question, I opened up a 403b with Vanguard because I already had a Roth IRA with them.  Using 403b compare, and listing the vendors from low to high annual costs, I decided to stay with Vanguard rather than Calstrs Pension 2 even though CalSTRS Pension 2 showed up as having lower annual costs because the compared cost is based on an account valued at 10k. Please tell me if my reasoning is faulty. According to 403b compare the annual administrative fee for CalSTRS Pension 2 is .25%. with expense ratios of .31%. Vanguard has a flat recording fee of $60 annually with an expense ratio of .15%.  I figure once my Vanguard account reaches 24k, the annual administrative cost of CalSTRS Pension 2 and the recording fee for Vanguard will be the same, but the expense ration for Vanguard will remain lower.  However, I have been telling the new teachers to contribute to a 403b now while they are young and have compound interest on their side and I've been telling them to contribute as retirement is approaching faster than we realize.  And when the new hires tell me they are only contributing 30-60 dollars a month into their 403b plan I tell them to invest in CalSTRS Pension 2.  If they plan on investing $500 or more a month (which none of the new hires have wanted to do) I tell them to invest with Vanguard. 

Thank you all for being a wealth of information. 

Therese 

 

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6 hours ago, tnewin said:

CalSTRS Pension 2...I decided to stay with Vanguard rather than Calstrs Pension 2 even though CalSTRS Pension 2 showed up as having lower annual costs because the compared cost is based on an account valued at 10k. Please tell me if my reasoning is faulty.

For anybody that might be as confused as I was, even though the word “pension” is in the name, this isn’t a pension. It’s a 403b/457b program.

Your logic is perfectly sound. Vanguard’s 403b is superior. However, when it comes to the 457b, CalSTRS Pension 2 is almost certainly superior to Mass Mutual and is also superior to a taxable account.

6 hours ago, tnewin said:

I'm not financially knowledgeable on taxable accounts to even know where to start, but I probably won't be able to max out on my taxable accounts for another year or two, so I have time to learn. 

At the highest level there are two types of investment accounts: taxable (no tax perks) and tax advantaged (401k, 403b, 457b, etc).

Tax Advantaged accounts have contribution limits and income limits because the government wants to limit the benefits it extends. However, a taxable account doesn’t have limits of any kind.

You simply go to a vendor of your choosing (Vanguard, Fidelity, etc) and fill out the paper work to open a taxable account. Then you can start funding it from a linked bank account and purchase investments.

In a taxable account you’ll receive dividends/capital gains distributions every quarter based on the stock that is held internal to the fund(s) you own. You will have to pay tax on that amount every year. Additionally, if you sell shares of your fund(s) for a profit, you’ll owe tax on that amount.

I can break down all of the details for you if you’d like, but that’s the main idea.

6 hours ago, tnewin said:

Do any of you have recommendations on books or websites to learn more about taxable accounts? 

I don’t, but I can teach you everything you need to know. Ask some questions. This may actually lead to me writing a blog post on this. Hearing your questions would help me do that.

6 hours ago, tnewin said:

Ed, at age 44, with a net worth of less than 200k, is it even possible for me to FIRE?

I don’t have the information necessary to answer that question.

What will you spend per year in retirement (including healthcare)?

How much are you saving per year?

Depending on the age you want to retire there is a general rule (supported by math and historical data) that you’ll need 25x-33x annual expenses to “safely” retire. The earlier you retire, the more you need. There are no certainties here, only probabilities.

...when performing the previous calculation you’ll want to subtract whatever your pension and social security payout is from your annual expenses. Of course if you retire early those amounts may be diminished.

If you respond with some more details, I can give a better reply.

 

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Tnewin

The fact that you are single and have no children is like having a few hundred grand extra in the bank, trust me. I think the fact you will have a pension and money in a 403b makes me feel you are on a good course. Just keep saving  the Vanguard way. Your pension is like an annuity. I'm discovering that I covered all my bases, reach my goals and  I have more money than I'll ever need.  I'm not even using my social security benefits. Do  California teachers qualify for SS?.You will be fine. That pension is worth a pretty penny.I feel the financial industry often uses fear to get you to save  more in the same way they sell life insurance. It's a good message but its often insincere. They just want your money. I do understand the cost of living in California is quite high however.

Ed may disagree but in my humble opinion Taxable and Roth accounts are a superior way to save. Taxable accounts are not taxed as income so you have some flexibility with losses and lower taxable rates when you sell .And certainly you'll have better choices even if the money isn't tax differed since you are not limited in choices.Ax Roth 403b money on the other hand is free and clear once you retire. Tax advantaged is what I wish I didn't own because the tax man comes after you at 70 and beyond. Had I gone Roth  more than I did I would not have to worry about the taxman because you've already payed the taxman. The Roth 403b was late to the party unfortunately for me or every penny would have gone into a Roth.

 

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tnewin,

Setting up a taxable account at a company like Vanguard is very easy.  I think you can do it yourself online, or if you prefer call and have them do it for you.  I have all three account types, and actually started doing taxable before 403b because Vanguard was not an approved vendor at my district until about 5 years ago.  I have since transferred all my "bad" 403b funds to Vanguard like you are planning on doing.

A couple key things to remember in a taxable account are, 1.) Buy mostly tax efficient funds.  In short this means hold mostly total stock market funds, and avoid bonds or things that kick out a lot of dividends. Dividends are taxed as income in the current year, whereas capital gains are taxed at a lower rate when you sell. You may want to increase your bond holding in your 403b, so that your total portfolio maintains your desired asset allocation., 2.) Hold funds at least one year before you sell so that you qualify for the long term capital gain rate.

As far as where as to prioritize Roth IRA vs. Traditional 403b vs. Taxable, reasonable people will disagree.  This if far less important decision than contribution rate and low fees. Personally, I like a mix of all, but I would prioritize the tax advantaged (403b and Roth) before the taxable, unless you expect an income throughout your entire retirement that exceeds your current income.  Note, however, that this is not what I did originally because of bad 403b choices.

 

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44 minutes ago, tony said:

Taxable and Roth accounts are a superior way to save.

This is a complex topic, but I want to be really clear that tax advantaged accounts are virtually guaranteed to be superior to a taxable account. The only reason I qualify that statement is because I suppose the government could rewrite the tax code in unpredictably insane ways.

This is true because in a taxable account you ALWAYS have to pay annual tax on the distributions (dividends and capital gains generated internal to the fund) the funds give you, but in a tax advantaged account you NEVER have to pay tax on distributions. So a taxable account has higher yearly expenses and as we all know lower expenses are superior.

Within tax advantaged accounts there is the debate about which is best, Roth or Traditional. The answer depends on which option will generate higher tax bills and has nothing to do with when the tax is paid. The answer is unknowable for sure because it requires knowledge of the future. I generally view this as an optimization not to get too crazy about. At any rate, I argue Traditional is very likely superior for most people and somebody wrote a blog that essentially parrots my opinions.

The reason I think Tony prefers Roth and Taxable over Traditional, and correct me if I’m not being fair, is because there is an emotional benefit to paying all (most?) of your tax up front and feeling like everything you have is truly yours. However, mathematically it doesn’t matter when you pay tax in a tax advantaged account, it only matters how much you pay. I’m more than happy to dive into the dirty details if anybody would like. 

44 minutes ago, tony said:

Taxable accounts is not taxed as income so you have some flexibility with losses and lower taxable rates when you sell

This is another tricky topic.

The tax code treats “ordinary income” differently than “capital gains”. They each have different tax rates (generally lower for capital gains), different income brackets, and different rules for achieving the 0% rate!

Distributions from a taxable account are broken up into two buckets: qualified and unqualified. The qualified portion is treated as a capital gain. The unqualified portion is treated as ordinary income.

Then when you sell shares in a taxable account they’ll either be considered “long term” or “short term” depending on how long you owned the shares. Long term gains are treated as capital gains and short term gains are treated as ordinary income.

If you search my post history you’ll see me talking about how to pay 0%, or close to 0%, taxes in retirement (particularly early retirement). A taxable account plays a big role in 0% tax early in the FIRE years, but you begin to pay tax later on. In my first analysis (the software I’m writing is still incomplete) the taxable account accounted for something like 80% of my tax bill while the Traditional account made up the other 20%. 

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9 hours ago, tnewin said:
 
 
 
8 hours ago, tnewin said:

 

Steve, I have a question, I opened up a 403b with Vanguard because I already had a Roth IRA with them.  Using 403b compare, and listing the vendors from low to high annual costs, I decided to stay with Vanguard rather than Calstrs Pension 2 even though CalSTRS Pension 2 showed up as having lower annual costs because the compared cost is based on an account valued at 10k. Please tell me if my reasoning is faulty.  No, your reasoning is not faulty. I agree with your rationale, stick with Vanguard.

According to 403b compare the annual administrative fee for CalSTRS Pension 2 is .25%. with expense ratios of .31%. Vanguard has a flat recording fee of $60 annually with an expense ratio of .15%.  I figure once my Vanguard account reaches 24k, the annual administrative cost of CalSTRS Pension 2 and the recording fee for Vanguard will be the same, but the expense ration for Vanguard will remain lower.  However, I have been telling the new teachers to contribute to a 403b now while they are young and have compound interest on their side and I've been telling them to contribute as retirement is approaching faster than we realize.  And when the new hires tell me they are only contributing 30-60 dollars a month into their 403b plan I tell them to invest in CalSTRS Pension 2.  If they plan on investing $500 or more a month (which none of the new hires have wanted to do) I tell them to invest with Vanguard. 

I suggested Pension2 because I didn't know you had Vanguard available. 

Thank you all for being a wealth of information. 

Therese 

P. S. While your question about FIRE was aimed at Ed, FWIW, you might be closer to quitting teaching than you think. Depending on how many years of service, you have a pension that many in the FIRE community do not have. That's a huge advantage! Go to one of CalSTRS workshops and schedule 1x1 appointment to find out your benefit would be at the time you want to FIRE.

 

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Therese,

You wrote: "I'm new to this whole finance thing and It's like a foreign language to me."

My esteemed colleagues all want to help you, and you are lucky to have come here to get their wisdom. As this discussion thread has progressed, I may be overly concerned, but FWIW, you don't have to know all of the minutiae of investing right out of the gate. As you said, it is a foreign language. And as Ed said this is getting complex, with words such as qualified vs unqualified, capital gains, ordinary income, roth vs IRA, tax brackets, etc. YIKES! I have a headache. 

You asked good questions to get you started on the right track by avoiding financial advisers and coming here. IT IS A LOT!  Just leave it at that for now and don't be concerned about the perfect portfolio with all of the "t"s crossed and the "i"s dotted. 

Steve

 

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Yea I agree with Steve. I am guilty here too.

We can sometimes go off the deep end thinking we are helping but in fact we may be confusing you further when presenting more options to consider when you are just  trying to clear  up your current concerns. Baby steps are a good thing. Sorry .

This is something  frequent  posters need to remind themselves of. Keep It Simple Stupid. And I am referring to us  frequent posters and not the original posters asking questions.

My apologies but you must notice the passion we share to help you.

P.S. I do also agree with Ed, and MNGOPHER. I agee owning different kinds of accounts gives you some flexibility and all have positives and negatives but since you have Vanguard in your 403b, you can't go wrong maxing it out in a tax advantaged/sheltered account.

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Hello All, 

THANK YOU, THANK YOU for your expertise and for taking the time out to answer my questions. !  I have much to learn and much to read. With all your input, I have decided to focus on maxing out my Roth IRA and my Vanguard 403b this year.  I will roll the Roth IRA I have with my credit union into an existing Vanguard Roth IRA account. 

Tony,  California public school teachers do not pay into social security.   Not having children does save me quite a bit of money, and allows me to financially help my mom.

Ed, I'm not sure how much I expect to spend in retirement.  These are things I should think about and start planning for.  As of now, I save about $1k a month cash (I know it can do better than just sit in a bank account earning minimal interest, but this is my emergency money and money to help my mom out.  I am looking into retiring at 56 and expect to receive about $2500 a month from my pension. 

A few more questions,  my understanding is that my beneficiaries can inherit my Roth IRA when I pass and allow it to grow tax-free, is that correct?

What happens to my 403b when I pass? I have beneficiaries on these accounts, would they have to withdraw the money right away? Would they have to wait until I would have turned 59.5 to withdraw the money? Would my beneficiaries have to turn 59.5 before they could withdraw from the money?

Also, If I pass before I am eligible to withdraw on my pension, what happens with my pension or does it just disappear? Is the income from a pension taxed?

I went to a CalSTRS  "Save for Your Future" workshop this afternoon.  The information was basic but the CalSTRS benefits specialist gave me a number to call to get assistance with getting a  better 457b vendor added to my district. 

Thank you for again, 

Therese 

 

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