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BrownFoot

Beginner Advice

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Hello everyone, I'm glad I have found this forum! My wife is a k-12 teacher in la porte isd in Texas. We started today in our journey to open a 403b account. To be honest we are more confused than when we started. I hope some of the more knowledge members can give us directions. The questions we have are the following.

1. I countless see people posting their vendors list, we have no idea where to find ours. Do  we ask our school HR department?

2. Where do we get the form to create the 403b account and do we submit this before we pick a vendor?

3. Where do we get the forms to deduct payroll for the 403b contributions? I saw an earlier post by user krow36 say that you need a Third Party Administrator for a reduction form, how do you go about picking a Third Party Administrator and are there associated fees.

4. We are hoping to open an account with vanguard or fidelity as suggested by EdLaFave, however these accounts have fees to maintain the account so in the event we have children and my wife leaves work for an extended time can we roll over the accounts to a traditional ira to avoid paying the fees?

Any advice would be helpful on this journey.

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Don't forget about 457b plans.

15 minutes ago, BrownFoot said:

1. I countless see people posting their vendors list, we have no idea where to find ours. Do  we ask our school HR department?

Your district has somebody who is in charge of retirement plans. At OCPS (FL) it was the "Retirement Services" department. You need to figure out who is in charge and ask them.

You may reasonably think that this department is running the whole show, but they often outsource most of the work to a Third Party Administrator (TPA). The TPA should also be able to tell you who the available vendors are. In the case of TSA Consulting Group (an infamous/common TPA) they post the vendors online, here is a link to the OCPS (FL) vendors as an example.

18 minutes ago, BrownFoot said:

2. Where do we get the form to create the 403b account and do we submit this before we pick a vendor?

Whatever your version of "Retirement Services" is, they should supply you with the necessary forms.

You open a 403b account with a specific vendor (approved by your district), so by definition you must pick a vendor first. You fill out a "Salary Reduction Agreement" with your district to give them permission to direct a portion of each paycheck to the 403b account.

20 minutes ago, BrownFoot said:

3. Where do we get the forms to deduct payroll for the 403b contributions? I saw an earlier post by user krow36 say that you need a Third Party Administrator for a reduction form, how do you go about picking a Third Party Administrator and are there associated fees.

Whatever your version of "Retirement Services" is, they should supply you with the necessary forms.

You don't pick the TPA, the district does.

20 minutes ago, BrownFoot said:

4. We are hoping to open an account with vanguard or fidelity as suggested by EdLaFave, however these accounts have fees to maintain the account so in the event we have children and my wife leaves work for an extended time can we roll over the accounts to a traditional ira to avoid paying the fees?

Whenever employment ends, you have the option to roll the 403b account over to a new employer's 403b vendor or to your own IRA account.

Remember, your district may not have approved Vanguard or Fidelity. In that case you can pick the next best vendor as your push your district to add Vanguard and Fidelity.

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Brownfoot, I work in Alvin ISD.  The admin and posters here on this site are very informative and have a lot knowledge.  I had an AXA account originally; however I soon found the fees and funds were not beneficial to me after coming over here talking with everyone.  I now have a fidelity account and just recently changed my allocations and funds thanks to Ed and Krow.  Here is the link to a very productive and thorough conversation from several weeks ago.  By switching my funds to the the three Ed and KRow suggested I have already started to see growth; whereas in the original funds I selected were stagnant and more fee cost.  I hope this helps Brownfoot. 

 

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1 hour ago, JT1906 said:

By switching my funds to the the three Ed and KRow suggested I have already started to see growth; whereas in the original funds I selected were stagnant and more fee cost.

The heart of what you're saying is absolutely true, total market index funds are superior to other more costly investments. However, there is a subtlety that I want novices to understand...

The primary alternative to an index fund is an actively managed fund (or even worse, an advisor trading multiple funds for you). Index funds return exactly what the market returns (minus rock bottom fees) while actively managed funds make bets on segments of the markets in the hopes of outperforming (minus expensive fees).

In any given year roughly a third of funds WILL outperform the index. However, they will NOT be able to sustain that performance year after year. Nobody can accurately predict the market and remember they have to beat the market by a good deal just to break even thanks to the high fees they charge! In 2005 when John Bogle reviewed the performance of the 355 mutual funds that existed in 1970:

  • 223 funds (62.8%) were closed before 2005.
  • 60 funds (16.9%) lagged the market by 1% or more.
  • 48 funds (13.5%) were within +/- 1% of the market.
  • 15 funds (4.2%) beat the market by 1-2%.
  • 9 funds (2.5%) beat the market by 2% or more.

So in the long run you can see that it is nearly impossible to beat the market. In fact, those who were lucky enough to beat the market were very likely just plain lucky. If you have everybody on the planet flip a coin repeatedly, you're going to find somebody who got heads every single time; it doesn't mean they're skillful.

Finally, past/current performance is NOT a predictor of future performance. In fact, the best way to underperform in the future is to pick the highest performing fund because the only way to become the highest performer is to make bets on the market and nobody can accurately predict the market.

So just remember, we invest in total market index funds because:

  • They have rock bottom fees (you get exactly what you DON'T pay for).
  • They are fully diversified because they essentially own every publicly traded company.
  • They own each company in proportion to each company's worth (i.e. they're not betting on certain segments of the market).
  • Nobody can predict the market.

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