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Marian

Total newbie with fee and vendor questions

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I'm very late to the party for saving. I'm 59.

1. I'm confused by the fact that the fees seem so much higher for the 457 plan than for the 403b plans available through the state's TPA, which is TCG. The fees are listed at the bottom of these plan summaries that I will post at the end of this question. It looks like to me that the fees are $1.50 a month (?) (and paid by the employer) for the 403b and something like $22 plus 0.77 with a $150K cap for the 457 plan (paid by the participant). My district chose a 457 that does not offer Roth contributions. However, there are Roth options in the 403b vendor list, which contains Fidelity and Vanguard (plus 58 others because this is Texas).  Is this a big difference in fees between the two plans? It seems like the 403b plans are fee free. Is that even possible?

2. If I want to make Roth contributions, the only option is a 403b. It looks like TCG holds and runs the 457 plan itself. I looked at the 457 quarterly report and my eyes glaze over. There are no vendor options listed for the 457. Does that mean TCG is the vendor? This is confusing to me.

3. Right now,  I plan to work until I'm 75, longer if I'm able. So would a Vanguard target date 403b plan be my best option? Like 2035? I can't even see which Vanguard options are available until I create the account with them using the secret code. Will these target date accounts be visible when I do that?

Thank you for any help you can give me. I'm embarrassed but I'm trying to get past it!

403b plan summary.jpg

457 plan summary.jpg

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I found this list of funds available for the 457. So this means that it is self-directed since I can choose a percentage myself? But why would I do this if the 403b is without fees?

Met Life Stable Value Fund

BlackRock Total Return Fund K

TIAA CREF Lifecycle Retirement

TIAA-CREF Lifecycle 2055

TIAA-CREF Lifecycle 2060

TIAA-CREF Lifecycle 2020

TIAA-CREF Lifecycle 2025

TIAA-CREF Lifecycle 2030

TIAA-CREF Lifecycle 2035

TIAA-CREF Lifecycle 2040

TIAA-CREF Lifecycle 2045

TIAA-CREF Lifecycle 2050

RAMS Capital Preservation

RAMS Conservative

RAMS Signature Portfolio

RAMS Moderately Conservative

RAMS Growth

RAMS Aggressive Growth

DFA Commodity Strategy Portfolio Institutional

DFA Continental Small

DFA Emerging Markets Core Equity I

DFA Intl Small Cap Value

DFA Large Cap International

DFA US Large Company Portfolio

DFA US Large Value

DFA US Micro Cap

DFA US Small Company

DFA US Small Value

Vanguard Long-Term Investment Grade Fund Admiral

Vanguard Short Term Bond Index Admiral

Vanguard Total Stock Market Index Admiral

Vanguard Wellesley Income Fund Admiral

Vanguard Wellington Fund Admiral

Victory Fund For Income

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Hello Marian, and welcome.  If you are really able to work for another fifteen of sixteen years, you'll be able to build up a 403b (or 457) nest egg that will be a meaningful addition to whatever other sources of retirement income you have (such as social security or pension).

I suggest we break your problems into parts: 

1. Let's figure out what the fees are for the 403b.

2. Then we can look at the fees for the 457.

3. After that, we can talk though which program makes and which fund(s) make sense for you. 

4. If there's a question about choosing between Roth and traditional, I suggest we put that off to last.  Bottom line is that both options are good.

Does that make sense?

If I read the TCG 403b chart correctly, the 403b is far from zero-fee: in fact the fees may be on the high side.

The key sentence about fees is weirdly ambiguous and ungrammatical: it says there is a $22.00 fee per year (which is reasonable for such a plan) and then it talks about .25% of assets (which is not unheard of but can really add up). It leaves out the word that tells you whether the percentage of assets is in addition to or instead of the $22.  My guess is that you have to pay both every year. On top of that, whatever fund or investment vehicle you use will also have a cost, usually expressed as "expense ratio."  You don't get billed for that--it is built into the fund, but you are paying it nevertheless.

By the way, beware of that "advisor" option with an additional .43% fee!  You do not need any such advisor.

So the next job is to locate the list of funds that are available in the 403b accounts, and see if you can find where they list the expense ratio of each fund.

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Will you have a pension at some point?  Will you have social security?  (and how much?)  The answer to these questions will help determine if you should do Roth or Traditional.

 

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Texas is unusual in having a state-wide 403b third party administrator (TPA). The 457 plan does look expensive, probably because the TPA doesn’t have any competition. It’s unfortunate that TX doesn’t have a state run low-cost 457 plan that is available to all TX school districts. About half of the states have such a 457 plan. I would max out your Roth IRA and a 403b before using the 457. Because you are over age 59.5, the 457 plan doesn’t have an advantage over the 403b for you. The early distribution penalty fee of 10% for those under 59.5 doesn’t apply to you.

You can read about Vanguard’s 403b plan on their website:https://investor.vanguard.com/403b-plans/  As you’ll see, they offer a wide selection that includes many low-cost index funds which we prefer here at 403bwise.

Fidelity offers a huge selection of funds in their 403b plan:   https://nb.fidelity.com/public/nb/ready2enroll/planoptions    If you use a target retirement fund, the Fidelity Freedom Index 20XX funds are lower cost and recommended over the Fidelity Freedom 20XX funds.

A Vanguard 403b charges an administration fee of $12/month. A Fidelity 403b charges $24/year. Both vendors have  index funds with very low expense ratios. Yes, I think a Vanguard Target Retirement 2035 fund is reasonable for you.

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These are the 403b vendors. I am pasting screen captures from the TCG website. The word "Fidelity" appears as Fidelity Security Life. Is this the right Fidelity? Also, all it says is Vanguard. It doesn't tell which funds you can pick from until you put in the secret code and go through the mystery portal. I guess I don't know what to do next. Do I go through the 403b mystery portal so I can see what funds I can choose from? I already did that for the 457 but I entered zero contributions so I don't think I signed up for anything. I guess I need to call and make sure tomorrow.

They TCG 403b fees just say "$1.50 paid by employer" in my first post. The 457 fees are the complex ungrammatical ones. This makes it look like there are no fees for the 403b. I guess that means no fees to TCG but there will be fees to the vendor, right?

I will have Texas Teacher Retirement but it's meager and there's never a COLA. Never. They give an extra check about every 15 years but you get what you get on the date of your retirement and that stays the same until the end. And we can't draw any Social Security due to the Windfall Elimination Provision and Government Pension Offset. So it's TRS and whatever you save on your own in this state.

Thanks for the thoughtful advice. I am grateful!

 

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Fidelity Security Life is not the "good" Fidelity.

I think the Vanguard traditional 403B is your best plan.  Your income now is probably greater than the combination of your state pension and your withdrawals from your own deferred account will be.  If your tax bracket is higher now than it will be when you retire in your 70s (with no SS), then you are better off doing traditional and paying the taxes later at a lower rate.  If there is a possibility that your retirement income will be higher than it is now, you could hedge the bet by contributing to a Roth IRA on your own.  But if your retirement income is higher than it is now, you might want to rethink working until your mid 70s and retire sooner.

 

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Fidelity Security is the wrong Fidelity. But Vanguard is an excellent very low-cost vendor. It’s the one you should choose. I don’t have access to your portal, but go ahead and explore. You don’t have to worry that you will be entrapped without realizing it. Vanguard is very big on educating their customers, so there will be useful information to digest. You won’t have an actual Vanguard 403b account until you sign their new account form. As you will read, Vanguard’s 403b plans are managed for them by a company called Newport Group. No contribution will come out of your paycheck until you sign your district’s Salary Reduction Statement. So relax and explore the Vanguard 403b link I posted.

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These are the Vanguard 403b funds:  https://www.vanguard.com/pdf/403binvt.pdf You can google any of those funds and find Vanguard’s detailed information on each of them.

If you are interested in the Target Retirement funds, here’s a webpage that covers them all:  https://investor.vanguard.com/mutual-funds/target-retirement/#/         Move your cursor over each one and click on the fund name that will appear. You don’t have to pick a fund based on your age or years to retirement, if you don’t want to. You can base your selection on the fund’s asset allocation, that is its stock bond ratio, which determines the fund’s volatility.

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6 hours ago, Marian said:

They TCG 403b fees just say "$1.50 paid by employer" in my first post. The 457 fees are the complex ungrammatical ones. This makes it look like there are no fees for the 403b. I guess that means no fees to TCG but there will be fees to the vendor, right?

My mistake on the percentage of assets fee--I didn't see that page applied to the 457, thanks for the correction.  So far it looks like the 403b is the better deal.  I wonder what those two asterisks next to Vanguard mean--can you find that?  In general, Vanguard is a great choice and yes, there will be fees paid to them as part of the deal, but they should be reasonable if those asterisks don't mean there's another fee...

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The two asterisks mean that the Vanguard 403b plans offer Roth contributions. I cut that off when I took the screen capture - sorry.

I'm going to go with the Vanguard 403b. I'll come back to this post in the next day or two with questions about which one. I guess I'm worried that I'll be so poor in retirement that I won't even be able to afford my taxes, which is why the Roth contributions even seem like an option. This is the part that is so embarrassing to me.

Here's something interesting. I looked at other Texas districts on the TCG portal because I have family members who work there. Some districts are only offering the 457 and no 403b. This seems really strange to me. That's the higher fee plan and the one without any district contribution to the fees. That just seems wrong to me, like so much else about this whole mess. Even my district only offers easy online signup for the 457 during benefits enrollment and not the 403b. I found out about the 403b plans only by digging down on the TCG website. The districts are really steering people toward the more expensive 457. It's so fishy.

I am immensely grateful for your patience,  all of you. Your willingness to help me make me feel like all is not lost.

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Good work on finding the "hidden" 403b!  I'm not surprised that they would steer you toward the higher-fee option, and possibly toward the added-fee advisor.  More money for the TCG administrator.   The school or district was probably told the service would be free to them; the schools often have nobody who really knows much about this, so there's no one acting in the best interest of the teacher/investors.  A few states have excellent programs set up by the state government (sort of like the Thrift Savings Program that federal employees get) but many more don't, leaving school employees to be preyed upon by insurance company salespeople and stock brokers.

So far it sounds like the "traditional" 403b is the best fit for your situation.   We can review some of the variables here if you want.  If the tax deduction you get now (each year you contribute) will permit you to contribute more than you would to the Roth, that alone is a very strong argument in favor of the traditional version. 

Let us know when you locate a list of funds and any related costs with the Vanguard option.  If your Vanguard plan includes that same list that Krow posted, you're in good shape.

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7 hours ago, Marian said:

 I guess I'm worried that I'll be so poor in retirement that I won't even be able to afford my taxes, which is why the Roth contributions even seem like an option. This is the part that is so embarrassing to me.

If there is a bright side to being very poor in retirement (low income), it's that at least you can take money out of a traditional account at a very low tax rate!

I don't think you're going to be as bad off as you think.  Start upping your contributions to the maximum or near max and your accounts will start accumulating fast.

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Thanks for the kind words! Encouragement from this group is really helping me to feel like I can get this done.

It looks like a choice between the Vanguard Target 2035 and Target 2040 would be the best option for me. It looks like the choice would be in how long I put off the move away from stocks in the fund. Is that right?

I found this calculator: https://americanfundsretirement.retire.americanfunds.com/tools/calculators/roth-401k.htm

It suggests that the traditional 403b would be better than the Roth for one reason. This calculator takes into account the future value of investing the tax savings from pre-tax traditional 403b contributions and assumes that I would invest those savings at the same rate as the retirement fund. After paying taxes on the traditional fund distributions, this strategy would mean an additional $1,000 per year in retirement income from the traditional 403b over the Roth.

Someone posted earlier to leave the Traditional v. Roth decision to the end. I guess I'm at that point now. The TPA website has you make that choice right away once you've selected the fund on the Vanguard account.

I'm open to any suggestions. The idea of the lower taxes in retirement is appealing to be because I fear that I will need every single cent then and that the pain would be slightly easier to take now. Is that crazy?

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