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D.D.

RN with 403b traditional and Roth options

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My employer offers a traditional 403b and a ROTH 403b. We can participate in both plans with the employer match going into the pretax option. The investment company is Mass Mutual and I recently narrowed down that their operating fees are 0.7% which is fairly high from what I’m hearing. At this time, I don’t have plans to seek employment elsewhere so I’m trying to figure out what options are the best and in what order. I’ve considered opening up a ROTH outside of the company with Vanguard or Fidelity to avoid the high operating costs of Mass Mutual.  The advisor for Mass Mutual has informed me that my investment is not an annuity.  Any advice would be greatly appreciated. Thanks in advance!

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Your fees are overall going to be higher with  Mass Mutual because you have to add in the expense ratio of the funds it offers. Also are you sure O.7% is the only other expense? Double check for unmentioned or additional fees. 

If it where me , depending on the amount you plan on saving , I would at very least invest in the tax sheltered plan up to the matching amount and put additional contributions in an IRA with Vanguard or Fidelity and choose the rock bottom fee index funds. Or maybe a Vanguard Target Fund if you want a hands off approach.

Again, a lot depends on how much you want to save and what other options you may have available to you that you may not have mentioned. Is Mass Mutual the only option?   No 457b plan? No other 403 b options?

Please share additional information like your district provider's list and the funds Mass mutual offers.

 

Tony

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D.D., welcome to the forum! Your idea of opening an IRA with either Vanguard or Fidelity before contributing to your employer's 403b plan is a good one. You can contribute $6000/year ($7000 if you are 50) to a traditional IRA or to a Roth IRA, or to a combination of both. If you can contribute more than the IRA annual limit, then you could consider the 403b plan, which allows contributions up to $19,500/yr. 

Can you provide a list of the mutual funds offered, and their expense ratios? It's not possible to know how expensive the 403b is, without knowing all the fees.

 

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D.D.

As Tony stated, your BEST choice is to maximize your employer match. Your next question is whether to use the Traditional or Roth 403b for your investment vehicle and that has a different answer for each of us because there are many variables, i.e., pensions, social security, other income, spouses income, retirement age, etc.  I boiled it down to another question: do you want your investment to compound on a tax-deferred basis or tax-free basis.  There are many articles re this topic and there is no fit-all answer. Some of us prefer tax avoidance and select the Traditional IRA; some anticipate high income during retirement and select the Roth; and some select a mix of both.

As Tony and krow both point out, an investment directly with Fidelity and Vanguard for Traditional or Roth IRA is an excellent choice. Additionally, in larger cities, Fidelity has walk-in and appointments for one-on-one service. Good luck. Bob

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On 10/14/2020 at 11:07 PM, D.D. said:

I’ve considered opening up a ROTH outside of the company

The terms Roth and Traditional specify the tax treatment a tax advantaged account will receive. It doesn't specify the type of account (401k, IRA, etc.). I assume you're talking about setting up a ROTH IRA, but for all I know you're talking about using a spouse's Roth 401k. Be aware that Traditional is likely superior to Roth for most people in most circumstances.

On 10/14/2020 at 11:07 PM, D.D. said:

operating fees are 0.7%

That is high, but you haven't told us what mutual funds are available in this account and what fees are associated with each fund.

I haven't done the math, but even at 0.7% I'd be shocked if that outweighs the benefit of getting a match and I'd be surprised if it outweighs the tax advantages relative to using a taxable account.

On 10/14/2020 at 11:07 PM, D.D. said:

Any advice would be greatly appreciated.

It is hard to give quality advice when I don't know what accounts your eligible for, how much you plan to invest, and other information. The best I can give you is generic truisms.

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