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eggbread

New Teacher needs help with 403b!

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Hi, Tony.  Your posts are perfectly communicative, don't fret (and have a drink if you like!).

I don't teach English, but I have a little experience writing. Plus I go back and use that edit command to clean up some of my many errors and typos.

Anything you want to add (or correct) in my advice to Eggbread?

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17 hours ago, eggbread said:

Currently I have an Equitable Equi-Vest variable annuity 403b plan that I have contributed to for a few years, with about $24k. The plan was to borrow that money from myself for the down payment on my house. I think I should be looking into moving the money elsewhere. Where do you suggest the house down payment money be held? Or are you suggesting that I cash it out and hold it in a savings account? The financial advisor guy was trying to get me to transfer it to National Life Group but I said I wanted to think about it.

I want to chime in here. First off, you cannot just withdraw your 403b money and put it into a savings account. All tax-deferred plans are long term plans. There are situations you can for hardship reasons, but purchasing a home is not one of them. 

BTW, get away from that "financial advisor guy!" He is just trying to sell you another terrible high priced insurance product, an annuity, so he can collect a nice commission. They are not Financial advisers that look out for your best interests. Transferring from one annuity to another makes no sense! 

This site is 403bwise.org and we are all teachers here who have learned to invest and stay away from annuities that are still overwhelming sold to k12 teachers in the country. It is a terrible product.

I agree with Whyme. You can post your question on Bogleheads.org and you will get lots of answers. In the meantime, we can still help. 

 

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5 minutes ago, sschullo said:

BTW, get away from that "financial advisor guy!" He is just trying to sell you another terrible high priced insurance product, an annuity, so he can collect a nice commission. They are not Financial advisers that look out for your best interests.

Amen!

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11 hours ago, whyme said:

Eggbread, this is an addendum to my previous post.  I just reread that one and I see that I overlooked your idea of borrowing and repaying from the 403b annuity.  I have no experience with such a loan, but it does make a little more sense as a way to avoid taxes and penalty fees when opposed to the option of just cashing out the policy, which would likely cost you thousands.  Still, that scenario makes me nervous.  I have to wonder: are you sure you're in a financial situation where you can afford to buy a house or condo?

Honestly, the only way I can make it work it with financial help from my family. Luckily, I am fortunate enough to be in a situation where my family can help.

The idea was that I would be able to borrow my down payment from my 403b without interest, up to $50k.

 

On 7/26/2020 at 7:56 PM, whyme said:

As to the easiest, no worries approach to the retirement account, I'd vote for Vanguard, and for investing in an all-in-one diversified fund--probably what is called a target date fund

I will look into this and get back to you.

 

I will contact a Vanguard retirement advisor and tell them a bit more about my situation. Are there any specific questions that I should be asking the Vanguard advisor?

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12 hours ago, eggbread said:

I will contact a Vanguard retirement advisor and tell them a bit more about my situation. Are there any specific questions that I should be asking the Vanguard advisor?

First off, I'd avoid asking for an "advisor" at Vanguard, lest they think you want to get into their formal advisory service, which costs money.  Not to imply they are bad actors--unlike the self-described "advisors" who prey on teachers to sell inappropriate high-fee insurance products, Vanguard's advisors will give their clients sound advice that is in their interest. But they do take an annual fee based on your assets.  To set up a 403b, you don't need that advisory service.  They should answer your questions and help you set things up free of charge.

I suggest you call and tell them that you want to establish a 403b account.  They should walk you through the process.  Make sure you have the name of your district and if the district has a code number for Vanguard on their 403b list, it'd be good to have that on hand, as well as your social security #. 

You might want to ask about their target date funds, and whether they have some easy-to-understand info about how those work and how to decide which one is appropriate for you.  The Vanguard rep might deal with all of this over the phone, but in any case I'm sure they have both online and printed material that can help you with that.  (We can also help here--trust me, it's simple.  If you later decide you want to tweak your portfolio after more research, you can do that easily and at no cost.)

Once you've gone through the basics of the new account, you can tell them (if this is correct) that you have an existing 403b variable annuity, and you are wondering what would be involved should you wish to roll those assets into your Vanguard 403b account.  They can help you figure out what is possible and what to look out for in terms of fees and penalties.  (Those would all come from the insurance company; Vanguard would be happy to have the funds and they won't charge you to bring money in.)

Expect a fee (essentially for bookkeeping) that applies to virtually all 403b accounts.  I'm not certain, but I think for Vanguard the fee is $60/year.  (They'll take this out periodically--you won't need to pay anything out of pocket.) That fee remains the same amount per year even when you build the account up to hundreds of thousands of dollars.  There are also costs for any fund you buy (expressed as an "expense ratio," it is built into the price of the fund).  Vanguard's expenses are consistently low.  

If you are still considering the idea of borrowing from the 403b, you might also ask whether and under what limitations such an arrangement is possible through Vanguard.  Personally, I don't like that strategy, but it can't hurt to know what is and isn't possible.

Please come back and let us know about your experience!

 

 

 

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On 7/26/2020 at 1:14 AM, eggbread said:

My main question is, which of the plans offered by my district is the most advantageous to me and my situation? From lurking around the forum, it seems like Vanguard is the way to go? But I would like to understand why, if that is the case.

Also, how can I tell if the guy that was introduced to me by my district is legit?

 

I disagree with the advice about CalSTRS Pension. They add on an AUM fee that makes them more expensive than Vanguard and Fidelity, which are your two best options. Both Vanguard and Fidelity let you build a fully diversified portfolio for rock bottom costs. Fidelity is a bit cheaper, but some people like the Vanguard culture better. I'm not going to pick a side myself.

I documented Vanguard here.

I documented Fidelity here.

Well I don't know what you mean by legit, but you can tally up the fees of the plan this person is trying to sell you, compare it to Vanguard or Fidelity, and you'll quickly conclude which is better.

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On 7/26/2020 at 8:10 PM, eggbread said:

My realtor's advice is to wait until all the government forbearance programs run out and see how the housing market looks then.

I've heard it all from Realtors over the years. Just remember that nobody can predict any market. Your agent is telling you to time the housing market. If you want to own a home (and there are lots of reasons not to) then find the home you want and buy it, that's my two cents.

 

On 7/26/2020 at 8:10 PM, eggbread said:

Between Fidelity and Vanguard, which is more beginner and user friendly, if there is such a measure?

I prefer to not have to worry and think about my money too much, but I am also beginning to get interested in investing in stocks and such. Is there an option to satisfy both needs, along with my house purchasing plan?

They're both super user friendly and we can guide you. I'd go with Fidelity because they're a little bit cheaper, but don't fret either way.

I hope you're not talking about individual stocks. What you need is a total market index fund that, as the name implies, purchases all of the stocks. You don't do anything except keep investing money the moment you have disposable income (regardless of what is happening or not happening in the market, see my note on market timing above).

You may want to read the Investing 101 page I wrote.

On 7/26/2020 at 10:56 PM, whyme said:

I think the down payment should be separated from the retirement investments: the house payment is for use in the near future, it's not being invested for your retirement decades from now.  Someone else here may be able to identify an advantage to mingling those funds within a retirement account, but I can't think of any.

If you can get money out of a retirement account to buy a house without paying some kind of fee then I don't know about it. Even if you can, I wouldn't want the hassle and for what? To avoid paying a few bucks on tax as you hold the money in a high interest savings account or a safe bond fund? I'm trying to simplify my life.

 

On 7/26/2020 at 10:56 PM, whyme said:

I should have said don't worry about the 457b YET

If Fidelity is listed as a 403b provider, there is a very high chance they're an approved 457b provider as well. They're the best 457b in the game.

 

On 7/26/2020 at 11:17 PM, eggbread said:

The plan was to borrow that money from myself for the down payment on my house. I think I should be looking into moving the money elsewhere. Where do you suggest the house down payment money be held? Or are you suggesting that I cash it out and hold it in a savings account?

It sounds like your so called advisor told you to put the money into the tax advantaged account because if you held it outside the account then they wouldn't get commission. Like I said, I don't know the exact rules, but I fully expect you'll pay some kind of fine or fee or interest to take that money out. If it were me, I'd start saving for my house outside of a tax advantaged account and I'd roll that tax advantaged money into a low cost vendor like Vanguard or Fidelity.

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Hello everyone. Quick update and questions...

 

I spoke with a Vanguard rep about rolling over my 403(b) variable annuity from Equitable. The person I spoke to said that when I rollover my 403(b) it will go into a Vanguard IRA.

Should I just have the Vanguard Target Retirement Fund IRA and not a separate 403(b)? I thought there was a limit to only $6000 per year for IRA's?

The Vanguard person I spoke to said although Vanguard is on the list of approved vendors for my district, that it actually goes through a third party? Does that mean I will not be able to have my pre-tax contributions automatically deducted from my paycheck, like I did with my variable annuity 403(b)?

Just a little confused.

Thanks!

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3 hours ago, eggbread said:

I spoke with a Vanguard rep about rolling over my 403(b) variable annuity from Equitable. The person I spoke to said that when I rollover my 403(b) it will go into a Vanguard IRA.

Hmmm. The Vanguard rep either didn't get your question right, or was misinformed. If your AXA 403b is with your current employer, you can transfer, in a trustee to trustee exchange, to any 403b vendor that is on your employer's 403b vendor list. AXA charges a surrender fee, depending on which AXA annuity you have. For Series 201, it's 5% for contributions made less than 5 years ago.

If your AXA 403b was with a previous employer, you would be able to roll it over to an IRA. There is no limit on the amount you can roll over into an IRA. You are right, there is an annual limit in the amount that you can contribute to your IRA, currently $6000, $7000 if over age 50.

3 hours ago, eggbread said:

The Vanguard person I spoke to said although Vanguard is on the list of approved vendors for my district, that it actually goes through a third party? Does that mean I will not be able to have my pre-tax contributions automatically deducted from my paycheck, like I did with my variable annuity 403(b)?

Several years ago, Vanguard contracted the running of their 403b plans for smaller organizations to Newport Group. All it means is that they will handle the 403b administration details, but it’s a Vanguard 403b. All 403b plans involve salary reduction agreements that allow your contributions to be deducted from your salary each pay period.

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18 hours ago, eggbread said:

I spoke with a Vanguard rep about rolling over my 403(b) variable annuity from Equitable. The person I spoke to said that when I rollover my 403(b) it will go into a Vanguard IRA.

Should I just have the Vanguard Target Retirement Fund IRA and not a separate 403(b)? I thought there was a limit to only $6000 per year for IRA's?

The Vanguard person I spoke to said although Vanguard is on the list of approved vendors for my district, that it actually goes through a third party? Does that mean I will not be able to have my pre-tax contributions automatically deducted from my paycheck, like I did with my variable annuity 403(b)?

Hello again, Eggbread. 

RE: The 403b third party--Krow (just above) has it right.  This should work well for you, and you will definitely be able to have pre-tax contributions deducted from your paycheck regularly.  If you haven't already, you should get the 403b setup immediately, so that you can start contributions now.  If it takes a while longer to work out the rollover details (you might even decide that it is worth waiting for months or even years to avoid surrender charges, depending how severe those are), that concern should not interfere with your new, improved 403b.

RE: the rollover.  Krow has this right, too.  Assuming that you are with the same employer and are not yet 59 1/2, it needs to roll into another of the 403b plans that your employer currently offers (in this case, a Vanguard 403b).   As I recall you are with the same employer, so you should call Vanguard again, make that fact very clear and see whether you can get a more definitive answer.  Before initiating the rollover, you should also contact AXA and try to get straight information about any surrender (or other) fees connected with rolling over that account to another 403b provider  (you can mention this issue to Vanguard, too, but I'm guessing they'll refer you to AXA rather than sort that out from their end).

Sorry to hear that the Vanguard rep left you confused and possibly gave you misinformation.  I've never encountered that with their reps, but my experience is limited and Vanguard management has been changing. I hope that isn't a sign of things to come.

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I keep meaning to call Equitable, but their offices close at 1:30 Pacific due to covid.

On the bright side, I just finished my enrollment with Vanguard's 403b. Vanguard Instl Target Ret 2050 Fund is the name.

Am I on the right track? If so I will start contributions.

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Eggbread, in addition to finding out the surrender fee from Equitable, you need to get their form for moving your 403b balance from them to Vanguard. They issue a numbered form to you that has to be completed and returned by a set date, maybe 30 days? Folks have had to start over when their turn-in date was passed. Their form will have to be signed by your third party administrator (TPA) and maybe Vanguard (I can't remember). 

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15 hours ago, eggbread said:

... I just finished my enrollment with Vanguard's 403b. Vanguard Instl Target Ret 2050 Fund is the name.

Am I on the right track? If so I will start contributions.

Sounds excellent!  Get started now, the more you contribute each paycheck, the better (think about how much those contributions now will compound over time). Good work finding your way to this plan.

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