401k or 403b?

[403bquestioning 0]

Hi,

I'm not a teacher but an employee at a 501(c)(3) nonprofit.  Despite our nonprofit status, we use a 401k retirement plan that charges .25% for advisor fees and .25% for admin expenses.  I've been thinking about asking if we can switch to a 403(b) plan, but I'm not sure if there's something I'll lose out on if we move away from the 401k.  It seems to me that any of the recommended vendors (Aspire, Fidelity, Vanguard) would all have lower fees.

In addition, our 401k plan only allows investing into 29 different funds (bond, equity, money mkt), 22 of which are Vanguard funds.  

Are there other things I should be thinking about besides fees in deciding whether to advocate for a 403(b)?  

Thanks so much!

[EdLaFave 0]

So your current 401k charges 0.50% plus whatever the expense ratios on the funds are. That's a lot and you're right, the three 403b vendors you listed would have lower fees.

If I were in your shoes, I'd be generally advocating for lower fees. Moving to a Vanguard 403b is certainly one possible way to get there, but so is moving to a low cost 401k (presumably Vanguard offers that too). I wouldn't limit my focus to one of the many solutions to the overall objective.

2 hours ago, 403bquestioning said:

In addition, our 401k plan only allows investing into 29 different funds (bond, equity, money mkt), 22 of which are Vanguard funds.  

Don't confuse complexity with effectiveness. All you really need are three funds:

1. Total Market Index Fund for domestic stock.
2. Total International Market Index Fund for international stock.
3. Total Bond Fund for bonds.

For those that don't want to manage 3 funds you could throw in all-in-one funds too (they contain those individual funds under the hood):

• A fixed asset allocation fund like Vanguard's LifeStrategy funds.
• A target date fund that gets more conservative as you approach the target date like Vanguard's Target Retirement funds.

So 29 funds is actually a lot more than you need (provided those 29 funds include the things I mentioned above).

2 hours ago, 403bquestioning said:

Are there other things I should be thinking about besides fees in deciding whether to advocate for a 403(b)?  

The number one thing I'd concern myself with is what tax deferred (401k, 403b, 457b, etc) plans will allow you to build a fully diversified portfolio at rock bottom costs.

The number two thing I'd concern myself with is that it would be nice to have a 457b in addition to a 401k/403b because (and fact check me on this) the 19.5k limit is shared between 401k and 403b contributions but the 19.5k limit on 457b plans is in addition to the 401k/403b limit. So I'd be trying to maximize the amount of tax free space my employer provides me.

The number three thing I'd concern myself with is the various differences between each type of account. For example the 457b has slightly different withdraw rules than the 403b does. However, this concern would be a distant 3rd.

[403bquestioning 0]

This is really helpful, thanks so much!!

[profinGA 0]

On 2/24/2020 at 11:51 AM, EdLaFave said:

The number two thing I'd concern myself with is that it would be nice to have a 457b in addition to a 401k/403b because (and fact check me on this) the 19.5k limit is shared between 401k and 403b contributions but the 19.5k limit on 457b plans is in addition to the 401k/403b limit. So I'd be trying to maximize the amount of tax free space my employer provides me.

The number three thing I'd concern myself with is the various differences between each type of account. For example the 457b has slightly different withdraw rules than the 403b does. However, this concern would be a distant 3rd.

Actually, you can submit the limit to the three of them independently. I know because when my husband had a really high-paying job about 3 years ago we did that (max his 401k; my 401a, 403b, 457b). 

I would ask your plan about HSA options. HSA are very good for tax reasons. 

[EdLaFave 0]

10 minutes ago, profinGA said:

Actually, you can submit the limit to the three of them independently. I know because when my husband had a really high-paying job about 3 years ago we did that (max his 401k; my 401a, 403b, 457b). 

I believe you were able to do this because he owned the 401k and you owned the 403b. I suspect if one of you had both accounts then you would have been in trouble.