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Washington teacher

457 fees lower than 403?

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I just changed school districts in Washington state and am choosing to put more money into the Deferred Comp 457b account or the 403b option rather than into my Defined Contribution account, because that account contribution amount is locked in until I leave my current school district; whereas the 457 and the 403 options can be stopped or changed at anytime.

The DCP is a 457b is through the state investment board and has very low fees, totaling less than .3%, depending on which fund I choose within the 457. I am assuming those fees are much lower than going with any of the 25+ 403b vendors that are on our district vendor list, but I am not sure. How do I find out the exact fees I would be paying with a 403b account through a vendor? Do I have to contact each one and talk to an advisor? That seems quite cumbersome and time consuming. Can anyone confirm for me that the 457 fees at less than 1/2 of a percent are going to be my best option from a fee standpoint?

Also, does anyone have recommendations for which funds I choose within the DCP? See attached file for the historical performance of each account? (I am 48 so I have about 15 years until retirement.)

Thank you,

Mark

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I am a retired WA state teacher. I understand that you are favoring the state deferred compensation 457 plan rather than contributing more than the minimum to the defined contribution part of the TRS plan 3 hybrid plan. Both use the same funds with the same fees. That sounds reasonable to me. Are you firm on using a Retirement Strategy fund? They are certainly diversified, but the total fees are about twice those of the 2 basic US stock and bond index funds.

US Large Cap Equity Index fund, all fees including expense ratio: 0.1313%

WA State Bond fund, all fees including expense ratio: 0.1373%

As for whether there are lower-cost 403b vendors on your district’s list, that depends. I think you can narrow the low-cost 403b vendors that are lower cost than the WA state 457 plan to Fidelity and Vanguard. Are they on the vendor list?

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Thank you, krow36. I am envious that you are already at retirement! Great thought about the lower fee and higher performing Large Cap fund. 

Vanguard is not on the vendor list. Fidelity Security Life Insurance Co is on the list, but I really can't imagine they would charge less than 0.1373% so I am inclined to stick with the DCP 457(b).

And yes, I would like to go this route rather than selecting a higher % on the defined contribution because that option is locked in permanently and I want to choose a fairly high amount now--but also want flexibility for life's "curveballs" that may come!

Thank you for your comments. They were helpful!

Enjoy retirement!

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One other question--

If I understand correctly, both the 457 and the 403 are tax deferred so it lowers my tax burden now, but I will pay taxes on that money when I pull it out in retirement. I am an administrator and my wife is a teacher, so together we are in a higher tax bracket now. So I am selecting the tax deferred options, thinking I will be in a lower tax bracket in retirement. My only hesitancy is that I have heard some suggestions that people diversity their retirement to include some Roth (taxed now but not later) investing as well so not ALL income is taxed in retirement. But I have also heard that suggestion for newer/younger teachers who are in lower income tax brackets now. Does the DCP 457 plan have a Roth option if I did decide to go with a "taxed now but not later" fund, and do you think this is a good idea in my situation? Since you are retired now, did you have some of both (pre and post tax contributions), and how has that worked out for you now?

Thanks!

Mark

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I retired in 1992 and since Roth accounts didn’t start until 1997, I didn’t have to make any decision on Roth vs traditional contributions. We have converted some traditional IRA to Roth IRA. We don’t have your problem of a high tax bracket as we took early retirement after 16 years. 

With 2 pensions and social security, possibly large deferred contribution accounts could well put you in a higher income tax bracket in retirement than you are in currently. Especially after age 72 when RMDs start. I think it might be prudent to use at least half Roth for the 403b and 457 accounts. You can reassess every few years as the tax code changes. 

Another consideration is saving in a taxable account vs a Roth account. They both have the same initial tax cost, but with no further tax, the Roth beats taxable. 

I should have mentioned that Security Benefit has NEA Direct Invest which is lower cost than the state DCP. Is SB on the district 403b list?

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