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Hi GA Teacher

 

The only fund that I see that the group here would probably recommend  and like is the Vanguard Institutional Index which is similar to the Vanguard 500 Index.  It's a  very good deal expense ratio wise and a decent fund. Other choices border on being a bit high in expense ratio for our panel of experts.One thing you could do is put a good bit of money in the Vanguard Institutional Index  as in  a 403b or 457b and use an IRA account  and  or maybe a taxable account  outside of your employer planto further diversify your account   while keeping your fees very low.  A typical diversified account using Index funds  that we recommend here looks like this:

Vanguard Total Stock Market Index

Or Vanguard 500 Index (plus  10% in a Vanguard Extended Index Fund)

Vanguard Total International Index

Vanguard Total Bond Market Index

So, you could  in addition to the 403b or 457b investment in The Vanguard Institutional, you could max out your IRA fund which allows you to pick any fund company you wish, which would be Vanguard and you  would pick the Vanguard Total International, Total Bond ,and Extended index in varying amounts to diversify your portfolio.

The other option is possibly do the T .Rowe Price Target Fund.  It's fully diversified and if you had to go with a managed fund choice because of lack of options, you could do worse than TRPrice.

 

I knew a teacher that only owned the Vanguard Institutional Fund and was completely satisfied with its performance even though he was aware that he wasn't diversified across assets classes, so you could just invest in that one fund and be fine and avoid the higher fund fees altogether. One good choice is better than no good choices.

Hope I helped.  I didn't look closely at other details of your plan so I will let others comment on going 457b vs 403b .

 

Regards,

Tony

 

 

 

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There’s an annual administration fee of 0.21%. http://publish.gwinnett.k12.ga.us/gcps/wcm/connect/4ce75fac-bf7c-4af5-8655-ea985b2bede9/Announcing+Changes+to+RSP+effective+04+05+2018.pdf?MOD=AJPERES

I agree with Tony that you should stick with the S&P 500 Index fund (Vanguard Institutional Index Inst VINIX). It covers about 80% of the total US stock market, and its rate of return has been almost the same as that of the Total Stock Market Index fund. If you are young (in your 20’s?) then you can justify having only 10 or 20% in bonds. Maybe use the Fixed Interest Option for you bonds allocation if you want? Or go 100% VINIX as Tony suggested. I don’t think VALIC is giving your district a very good deal. There should be at least a low-cost bond fund in addition to VINIX!

 

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8 hours ago, krow36 said:

I don’t think VALIC is giving your district a very good deal. There should be at least a low-cost bond fund in addition to VINIX!

 

I have to wonder why VALIC has different funds in its plans when you go from district to district and plan to plan. I wish they would at very least standardize their offerings across the board. That at least would give them, if done right a better reputation. I've seen some Valic administered plans that have enough good choices to get a good low cost mix of funds. This plan is lacking in adequate index fund choices.

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Wow!  Thank you very much for your explanations, Tony and Krow36!!  I've been saving into both 457 and 403 since 2007 without knowing anything except that I should save into retirement accounts and a Valic rep was at the school.  My pre-tax 457 account has a much bigger savings than my later added post-tax 403.  I only added 403 in 2016 because I heard post-tax is better than pre-tax without much research..  I'm 36 years old, and just beginning to understand my Valic quarterly statement.  My plans include the 0.21% administration fee and for their Guided Portfolio service, an additional 0.45% management fee, and I will definitely call them and get out of it today.  

Our district has Teacher Retirement System which draws 6% of our paycheck monthly and pay into our pension.  Because of this, I was thinking maybe I can do 100% VINIX like Tony suggested and count on the pension as substitution for bonds/fixed income?  For past couple years, I was in "Moderately Conservative" allocation so much of money went into Fixed Interest Option, which is Valic's fixed annuity.  Should I keep the annuity or surrender it if there's no fee?  

Allocation from my last quarter statement:

  • Large Cap 23.07%
  • Small Cap 9.68%
  • Global and Intl Equity 16.65%
  • Fixed Income 50.60%

Thank you so much for your help!!

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1 hour ago, GA teacher said:

  I only added 403 in 2016 because I heard post-tax is better than pre-tax without much research..

Nothing wrong with owning both pretax and post tax in your accounts each has its advantages. I've read so many contrary views as to which is better that when I was working I just contributed to both.  Some will say tax advantaged is better but I don't know that for sure. Some on the other hand say post tax is better. I like the flexibility of owning both but if I could do it again I'd probably go 100% post tax so i wouldn't have to worry about RMD taxes  when I turn 70 but that is just a personal observation and open to discussion.

 

1 hour ago, GA teacher said:

My plans include the 0.21% administration fee and for their Guided Portfolio service, an additional 0.45% management fee, and I will definitely call them and get out of it today.  

 

You might not be able to escape the administrative fee but you should get rid of the guided portfolio service. that's a huge rip-off.

 

1 hour ago, GA teacher said:

was thinking maybe I can do 100% VINIX like Tony suggested and count on the pension as substitution for bonds/fixed income?

I don't see that as a problem considering your limited low cost choices in this valic plan. You could further diversify however by also opening an IRA and taxable account and add the additional funds I mentioned. However depending on the the underlying investments in your pension plan you might be fine just going 100% VINIX.

 

1 hour ago, GA teacher said:

 For past couple years, I was in "Moderately Conservative" allocation so much of money went into Fixed Interest Option, which is Valic's fixed annuity.  Should I keep the annuity or surrender it if there's no fee?  

You need to get out of that. Pay the surrender fee  if there is one and move your assets straight over to VINX. At your age I would tilt more to moderately aggressive instead of moderately conservative, meaning more stocks than bonds at this stage of your life. You can get more conservative as you get closer to retirement. 50% in a fixed income situation is too much at your age .

I say this under the pretext of not knowing what the market will do in these strange times we are living through. Still you are a good ways away from retirement so investing in a stock fund more than bonds and fixed accounts makes more sense.

My only further advice is do not let your Valic rep talk you out of doing what we are advising you to do here. There is really only one good choice in your plan and that is the VINX fund. The others aren't terrible but the fees will eat into your returns over time quite significantly. I learned that the hard way unfortunately, many years ago. LOW FEES MATTER!!

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I think 50% in the Fixed Income Option is way too much for someone age 36. Is your 457 plan also with VALIC, with no other vendor choice? I know GA has a state 457 plan but can't remember if it is open to teachers. I'm afraid it is not. I would go ahead and get rid of the advisor and that fee, and change to 100% VINIX for the time being. There shouldn't be any surrender fee to change your funds within the account. If the district improves their plan in the future by adding a low-cost bond index fund, you can make changes. You might push for it?

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7 hours ago, tony said:

Nothing wrong with owning both pretax and post tax in your accounts each has its advantages. I've read so many contrary views as to which is better that when I was working I just contributed to both.  Some will say tax advantaged is better but I don't know that for sure. Some on the other hand say post tax is better. I like the flexibility of owning both but if I could do it again I'd probably go 100% post tax so i wouldn't have to worry about RMD taxes  when I turn 70 but that is just a personal observation and open to discussion.

 

My current balance in post-tax 403 account is about 22% of the balance amount I have in pre-tax 457.  Which account should I be focusing on more or contributing more?  I'm not sure if it will be better to let the bigger snowball grow more (in this case my pre-tax 457) or start focusing on the post tax account?

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7 hours ago, tony said:

You might not be able to escape the administrative fee but you should get rid of the guided portfolio service. that's a huge rip-off.

I called today to cancel the guided portfolio service.  Today ended up being the last day of the 2nd quarter, so I'm hoping that they won't charge me for the 3rd quarter fee.  They said it takes 1-3 business days for the cancellation of the service..  Hope it wasn't too late.

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6 hours ago, krow36 said:

I think 50% in the Fixed Income Option is way too much for someone age 36. Is your 457 plan also with VALIC, with no other vendor choice? I know GA has a state 457 plan but can't remember if it is open to teachers. I'm afraid it is not. I would go ahead and get rid of the advisor and that fee, and change to 100% VINIX for the time being. There shouldn't be any surrender fee to change your funds within the account. If the district improves their plan in the future by adding a low-cost bond index fund, you can make changes. You might push for it?

457 is with Valic.  That's the only vendor we have.  When I called the advisor today, he told me why I was getting out of the guided service and told me it was low cost.  I told him 0.45% was too high of a fee 🙂  He didn't say anything after that. I definitely should ask for them for more diversified options.

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1 hour ago, GA teacher said:

When I called the advisor today, he told me why I was getting out of the guided service and told me it was low cost.  I told him 0.45% was too high of a fee 🙂  He didn't say anything after that.

That's a great line.

I'm 37 and my investments are 90/10 stock/bond. Stocks are 60/40 US/International. I keep it similar to Vanguard's Target 2045 Fund:
https://investor.vanguard.com/mutual-funds/profile/portfolio/vtivx

The options you have aren't the best. I wonder if your could petition you school board or payroll department to get better ones. 100% VINIX looks wild until you start looking at the other options. BRHYX looks like garbage as a bond fund.

TRPMX is pretty much the same allocation as VTIVX, but the fees are 6x higher that what I'd pay for the institutional class shares. 8x higher with the added administration fee.

If you contribute less than $6k/yr you could do an IRA anywhere, like Fidelity or Vanguard.

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2 hours ago, GA teacher said:

My current balance in post-tax 403 account is about 22% of the balance amount I have in pre-tax 457.  Which account should I be focusing on more or contributing more?  I'm not sure if it will be better to let the bigger snowball grow more (in this case my pre-tax 457) or start focusing on the post tax account?

GA Teacher

It's pretty much up to you to decide how to proceed.  Like I said previously, I like the idea of having my retirement money free and clear of the tax man upon retirement if for nothing else knowing the money is all mine.  Paying RMD 's can't be fun and I'm not looking forward to it. When I started out, pre tax was my only option. Later down the road when post tax options became available I went 100% in.  So I have both and I'm retired now  . I also have some taxable accounts. I like the flexibility of having different types of accounts.

it is impossible to know the precise direction of future tax rates, but you can look at the present for some clues to the future. High deficits and high levels of national debt suggest possible higher taxes in the future. If you believe taxes are likely to be higher in the future and I do , you might want to lean more toward a Roth or after tax account , because that plan allows you to withdraw money tax-free when you retire.   However, there are some strong advocates for going  100% tax advantaged too. I'm jus offering a personal  opinion.

Hope this helps..

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2 hours ago, GA teacher said:

My current balance in post-tax 403 account is about 22% of the balance amount I have in pre-tax 457.  Which account should I be focusing on more or contributing more?  I'm not sure if it will be better to let the bigger snowball grow more (in this case my pre-tax 457) or start focusing on the post tax account?

If the fees are the same, the 457 has friendlier withdrawal options(no 10% penalty) if you're no longer with your employer and in need of the money. I would put all my eggs in that basket. Without knowing your total household income and tax bracketry I wouldn't know how to suggest your division of pre-tax to post-tax.

If you're married, it looks like you want to aim for dollars your earn over ~$105k to stay out of the 22% bracket and go in to pre-tax accounts. Single, ~$52k.
With anything below, you may want to consider post-tax, Roth, accounts. You'd pay the 12% on that earned income today, but nothing years from now.

Things come out pretty close regardless of how you place your bets on your future existence though. There's a calculator in this article you can play with:
https://www.nerdwallet.com/blog/investing/roth-ira/roth-tops-traditional-iras-up-to-six-figures/

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19 hours ago, ScottO said:

That's a great line.

I'm 37 and my investments are 90/10 stock/bond. Stocks are 60/40 US/International. I keep it similar to Vanguard's Target 2045 Fund:
https://investor.vanguard.com/mutual-funds/profile/portfolio/vtivx

The options you have aren't the best. I wonder if your could petition you school board or payroll department to get better ones. 100% VINIX looks wild until you start looking at the other options. BRHYX looks like garbage as a bond fund.

TRPMX is pretty much the same allocation as VTIVX, but the fees are 6x higher that what I'd pay for the institutional class shares. 8x higher with the added administration fee.

If you contribute less than $6k/yr you could do an IRA anywhere, like Fidelity or Vanguard.

Wow!  Thank you, ScottO.  It's nice to see the allocation that Vanguard uses for their Target Fund.  What do you mean by "100% VINIX looks wild..."?  

Also, is "$6K/yr" the max for an IRA?

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