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CTVAteacher56

VA teacher- 403B or IRA?

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Hey All-  so the district I work for only uses Valic.  So my only option was 403b or 457b.  In my quest to be more more financially literate I stumbled across this site and am amazed.

i didn’t think I had to worry about getting hosed so badly as a teacher and owner of a 403b.  So I have immediately setup an appointment with my 403b manager to get an exact outline of every fee associated with my investments.

does anyone have any suqqestions for certain investments to avoid within my 403b?  I am on a quest to streamline all unnecessary fees and costs.  What type of investments should I insist on?  Low cost index funds?  Etfs?

also I have a rollover Ira that I have used to pool funds from previous 403b accounts.  Does it make sense to just max out my Ira first? IAnd anything else I can afford for retirement I use my 403b?

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Welcome CTV

I think we first need to see what other choices you have available to you in your 403b plan. Please list the complete list. From there we can give you more guidance.

An IRA has advantages and disadvantages. You can pick the funds you want and the fee you want. You have no limitations except the amount you can put into them each year. The 403b allows much higher contribution rates. We suggest very low cost index funds usually through Vanguard or Fidelity. I personally like Vanguard's target market funds or Vanguard Life strategy funds.

It certainly makes sense to max out your IRA , just make sure you have a good asset allocation and dirt cheap index funds. Incidentally both the Vanguard Target and life strategy funds are totally comprised of index funds so one fund and you are done. Something to consider.

I hope i've helped some and please list you 403b choices.

Tony

OOPs I just reread your post. You only have Valic? By chance do you have a 457b plan ? Could you list the Valic fund choices at  your disposal please? If you don't intend to ever invest more than IRA contribution limits than I would just forget the 403b considering its limitations. However down the road you may wish to contribute more so why not push for better 403b choices. I write this not knowing your age.  Hope to hear back from you.

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At least you have some low cost options with Vanguard. You can see their lower net expense ratios among the available funds.

40% VINIX - S&P 500
10% VIEIX - US Extended Stock
30% VTSNX -  Total International Stock
20% VBTIX - Total US Bond

^ Something like that would be a good starting point, but keep doing your homework.

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I live in Virginia. You have a State  457b plan available to teachers that has very good funds and very low fees that rivals Vanguard. Henrico county is not far from where I live.  A better one than you have in your plan but yours has some good underlying fund choices despite Valic's administration

You could just do the IRA thing since you don't think you will be exceeding its limits.  What are you investing in? 

 

But if you ever want to go further you could do these funds in your 457b account.The fees are good for the Vanguard Funds listed here.

Vanguard International index 20%

Vanguard Institutional Index 55%

Vanguard Extended Index 10%

Vanguard Total Bond 15%

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Scott just echoed my comments and gave you a slightly different allocation.  Both are o.k We both agree on  the funds. You are good to go. Most folks go heavier on international than i recommended but i'm not crazy about going hog wild in that category. 

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2 hours ago, CTVAteacher56 said:

i didn’t think I had to worry about getting hosed so badly as a teacher and owner of a 403b.  So I have immediately setup an appointment with my 403b manager to get an exact outline of every fee associated with my investments.

 

Watch Out. I don't know who your 403b manager is but I'd skip that meeting and go with the 457b plan as recommended by ScottO and me. I worry who you will meet is going to steer you to funds that may not be in your best interest. Go 457B in your school system and stick to the funds we recommended. They are very low fee and good funds. Over my years as a teacher I have seen these so called managers often steer teachers into higher fees products. Also there is no guarantee your so called 403b manager even knows what he/she is talking about. You can trust Scott's recommendations . You can also trust mine.  

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Meet with the manager, but print out the two suggested portfolios from Tony and I. Ask for feedback on why two strangers on a forum would have recommended such similar allocations and have a discussion. Question everything.

When I was looking for a 457 vendor, I met with salespeople, but I would always bring a printout of what the best information I had at the time was. I would ask why what I had wasn't the best (in their view) and they were honest in admitting that their company couldn't match the low cost. I even got a few other tips before the meetings would end early 😛

Sign up for a 403bwise event. Toward the end of each one there's a Q&A session where you could ask this question as well. Talk to everyone, make up your own mind.

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Your fortunate that your district negotiated well. Both your 403b and 457b have the index funds that will allow you to own the entire market. The index funds have rock bottom fees.

The one question you need to answer is if there are any other fees. A lot of these plans will charge an AUM (assets under management) fee in addition to the fees associated with each fund.

If there aren’t any other fees then you can invest in whatever account you want (IRA, 403b, or 457b). They each have slightly different rules (sometimes there are withdrawal differences, I think some have different protections, etc), but these differences are minuscule. I’m primarily concerned with getting you fully diversified with minimal fees and all three of your options do that (as long as their isn’t an AUM fee).

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12 minutes ago, EdLaFave said:

Both your 403b and 457b have the index funds

Ed,

I'm glad you pointed that out. I failed to look at the 403b choices and fees. I went straight to the 457b saw index funds and just figured the 403b would be an inferior offering. It's not. Chances are since both are administered by Valic, the  administrative fees might be the same.

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11 minutes ago, tony said:

Ed,

I'm glad you pointed that out. I failed to look at the 403b choices and fees. I went straight to the 457b saw index funds and just figured the 403b would be an inferior offering. It's not. Chances are since both are administered by Valic, the  administrative fees might be the same.

Here is my current allocation .  Henrico county 403b through valic ED305778-18C8-433F-B5F2-B303A27B2845.thumb.jpeg.bf6d917c64207ff7995ee3b819db0b8d.jpeg

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You don't need all of those funds. Not only do you not need them all, but most of them are needlessly charging you high fees.You may want to read the Investing 101 page I wrote to give you a foundation to understand how to build a portfolio...it's a short read

Once you understand the stuff in the Investing 101 page, it's only a matter of picking the right percentage for each of these funds:

  • The Vanguard International fund (VTSNX) has you completely covered on foreign stocks.
  • The Vanguard Institutional fund (VINIX) is 0% small cap, 11% mid cap, and 89% large cap.
    • The total US market is 5% small cap, 16% mid cap, and 79% large cap.
    • So VINIX is a good approximation of the US market, but it can be paired with Vanguard' Extended Market (VIEIX) if you want to be "pure" and get the exact proportions.
  • The Vanguard Total Bond Fund (VBTIX) has you completely covered on bonds.

Quick note: you should think of the summations of all of your accounts as your portfolio. Every account doesn't have to meet your asset allocation, collectively all of your accounts have to meet your asset allocation. This approach allows you to use certain accounts to buy a particular fund if it is more expensive to buy in one of your other accounts.

All of those funds listed above have rock bottom fees. Together they give you complete diversification. There is no value in holding the other funds. In fact, they hurt you because they're expensive.

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Very nice summary Ed! I agree that only the 3 funds are needed, 4 if you want to include small caps. The S&P 500 Index fund (VINIX) is a very good substitute for a Total Stock Market Index fund.

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The Performance Results for the funds in VALIC’s plan for County of Henrico PS 403b:

https://my.valic.com/ARO/FundPerformance/FundPerformanceFluent.aspx?q=H1W7wtchY+37B09bn5trVLKC9QjUHoaO2yMAQOjzlmtn9F2unQh5WPGnl8bVV3QwtwxmOzyX7ynDQLcpmDyelw==

Notice that near the bottom they give the administration fee:

Quote

Note: Performance data does not include plan administrative charges of 0.15.

This is a very reasonable admin fee, and I think your district has done an excellent job of organizing their 403b and 457b plans!

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CTVA Teacher

 

Henrico county here in Virginia is a "suburb" of Richmond Va. about 1.5 hours from me. Compared to other schools around here Henrico has a fairly decent offering if you chose correctly. I agree with what others are saying and more people concurring should make you feel reassured that we are giving you good advice.

The Vanguard Funds as mentioned are all you need. I would not use the target funds offered in your plan because they are not the best choice and not worth the expense.

Those other funds you show are overkill and not needed.

What are you investing in your IRA?  You do realize you can transfer it over to Vanguard at any time too? you could as an option pick the same funds there that you might use in a 403b/457b now or in the future. Simplification is always a good idea. Take it from me I use to own many moons ago 28-30 funds!! Thanks to so called "advisors"

 

 

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