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Stillwater007

Advantages of rollover IRA to a 403b? Disadvantage?

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I am thinking of rolling over my tIRA into my 403b account plan. The reason why is:

1. Expense ratios for the 2 mutual funds will be cheaper going from around .23% to .16%

The 403b waives the minimum starting investment and it happens to be Admiral Shares which are cheaper than Investor Shares.

Also, if I rollover my tIRA (which is around 34k total), would it effect the max amount allowed I have to contribute this year?

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 You can do it if your plan allows it . Better check first.I really don't see any advantage to doing that. Why not just rollover the current  IRA over to a lower cost IRA  equivalent at Vanguard.  You can probably go even  cheaper that way and it can be done at anytime. 403bs always have more fees. Also I'm assuming this is a tax advantaged IRA going to a tax advantaged 403b plan. I doubt you would want to transfer a Roth IRA into a 403b tax advantaged plan. 

At some  point you will probably be doing  the reverse. You will transfer/consolidate  your 403b funds into an IRA  fund upon retirement.  I don't see the point  of doing an IRA to 403b transfer when your IRA can be transferred to an even lower cost equivelent in an IRA account.

 

Also, if I rollover my tIRA (which is around 34k total), would it effect the max amount allowed I have to contribute this year?  

I don't think so as a transfer is not treated as a paycheck contribution.

 

 

 
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Hi Tony,

I should probably elaborate better. My fault.

So I moved my tIRA that was with Edward Jones to Vanguard. It went from 1.05 in fees to .23 in fees. Don't ask why I went with EJ, I was clueless.

The rollover to the Vanguard 403b(pre-tax) would be for the fees to be even lower from .23 to .16%. That's mainly why.

I will already start contributing to the ROTH side of my 403b(Roth) so I will have fees anyways ($5 a month). There are no extra fees to have add the 403b (pre-tax) to the 403b Roth since it's still only one plan.

It seems advantageous, I dunno?

At least that's what Vanguard told me over the phone.

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1 hour ago, Stillwater007 said:

The rollover to the Vanguard 403b(pre-tax) would be for the fees to be even lower from .23 to .16%. That's mainly why.

 

 I totally get moving away from Edward Jones I'm not sure I understand the rest . Are you sure your Vanguard 403b offers an identical  Vanguard fund lower than the same fund in a Vanguard IRA?  Hard to believe.  At very least it should be the same cost and usually lower..  In any case you are lowering fees so it can be done.

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It does seem hard to believe, but I think it's Vanguards way of attracting clients to invest in their 403b plans because it does cost $5 a month or $60 a year as opposed to the IRA. 

Yes, it's virtually the same. For example, the tIRA has the VWINX while the 403b has the VWIAX. They're both the Wellesley Mutual Fund, one is the Admiral, the other Investor. Aside from the difference in the Minimum balance requirement and expense fee , they seem to be the same.

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I agree with Tony that moving your IRA to your 403b is probably not a good idea because of the 403b fees. A difference of 0.07% in ERs is not significant. Even if your 34k was all in Wellesley, the difference in ERs is $23.80. I think the way to lower your ERs is to use index funds rather than actively-managed funds. The only valid reason I can think of to roll your IRA into your 403b is if your IRA was traditional not Roth, and your income was high enough to prevent you from contributing directly to your Roth IRA. Rolling the tIRA to your 403b would allow you to use the Roth IRA backdoor process.  

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20 hours ago, Stillwater007 said:

At least that's what Vanguard told me over the phone.

Have to be honest Vanguard advice can be lacking especially on the 403b side which is administered by an outside agency I believe it was Newport? I would triple check any advice they give you. Sometimes these phone reps aren't very knowledgable.  Let us know what you decide.

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I don't think there's a problem with the Vanguard phone rep. The Wellesley Admiral fund has a minimum investment balance of 50k because it's not an index fund. The Newport Group/Vanguard 403b waive the balance requirement and so Wellesley Admiral is cheaper in the 403b than in the IRA. The 403b also has Institutional class Target Retirement funds, ERs of 0.09% instead of the IRA's Investment class ERs of 0.14%. These differences in ERs don't make up for the 403b annual fees compared to zero annual fees with the IRA, at least for smaller balances like those of Stillwater007. 

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20 minutes ago, krow36 said:

I don't think there's a problem with the Vanguard phone rep. The Wellesley Admiral fund has a minimum investment balance of 50k because it's not an index fund. The Newport Group/Vanguard 403b waive the balance requirement and so Wellesley Admiral is cheaper in the 403b than in the IRA. The 403b also has Institutional class Target Retirement funds, ERs of 0.09% instead of the IRA's Investment class ERs of 0.14%. These differences in ERs don't make up for the 403b annual fees compared to zero annual fees with the IRA, at least for smaller balances like those of Stillwater007. 

 Krow nailed it. That explains the rationale  right there.  That makes sense as to why it's cheaper in a 403b. I had no idea this could ever happen. It's a rare situation. I had no idea there was a 50 k min. in an IRA for that fund. WHY ?  In MOST cases Vanguard funds will be cheaper in a regular IRA account but looks like there are exceptions. I learned something.

I had a lot of problems  dealing with Newport  when I was trying to do a transfer out of a 403b and into an IRA. I was not impressed with the phone reps. But that was early on when Newport was first managing Vanguard's 403b.  I'm sure they have it better together now.

 

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I agree that the savings in a lower expense fee doesn't make up the cost of the 403b fee unless it's over 95k which then the 403b wouldn't be necessary. HOWEVER, after maxing out my IRA, where else can I invest? A taxable account? Maybe. But wouldn't that be counter to trying to keep my investment tax sheltered?

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1 hour ago, tony said:

 I had no idea there was a 50 k min. in an IRA for that fund. WHY ?  In MOST cases Vanguard funds will be cheaper in a regular IRA account but looks like there are exceptions.

 

Vanguard has a 50k minimum for all non-index Admiral class funds, whether they are in a taxable account or in an IRA. Vanguard is getting serious about attracting more K-12 403b districts and through Newport Group has reduced some ERs, added the Roth 403b. I think NG has improved a lot since those early days. Scott and Dan have met with NG and VG at the VG HQ last year I think, and were very impressed with the changes. 

 

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56 minutes ago, Stillwater007 said:

HOWEVER, after maxing out my IRA, where else can I invest? A taxable account? Maybe. But wouldn't that be counter to trying to keep my investment tax sheltered?

Does your district have a 457b plan that you can contribute to? Most districts do, although there can be a lack of a low-cost vendor. About half the states allow school districts to join state employees in a state-run 457b (also call a Deferred Compensation Plan or DCP). What state are you in?

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58 minutes ago, krow36 said:

Vanguard has a 50k minimum for all non-index Admiral class funds, whether they are in a taxable account or in an IRA. Vanguard is getting serious about attracting more K-12 403b districts and through Newport Group has reduced some ERs, added the Roth 403b. I think NG has improved a lot since those early days. Scott and Dan have met with NG and VG at the VG HQ last year I think, and were very impressed with the changes. 

 

I didn't know that they now have a $50,000 min for admiral shares.  Wasn't it less at one time?  If I remember correctly it was $10,000 at some point . I guess that's understandable that I'm not aware of that  since I have no interest in investing in their managed funds. I am sure Newport is better now. I caught them exactly when the 403b transition started.  

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47 minutes ago, krow36 said:

HOWEVER, after maxing out my IRA, where else can I invest? A taxable account? Maybe. But wouldn't that be counter to trying to keep my investment tax sheltered?

I agree that your next move should be a 457b once you max out a 403b if its decent. But there is nothing wrong and somewhat smart to diversify your accounts beyond retirement account especially if you exhaust all your decent retirement accounts and still have money to invest. For instance, you can write off loses against gains in taxable accounts. That's called tax loss harvesting. I did that effectively for years and reduced my taxes to zero or close to it in some years.  I also think its smart to have tax sheltered and Roth accounts. 

Ultimately , saving in any of these vehicles is smart as long as you keep your fees rock bottom. I think Stillwater should reconsider trying to tap into a managed fund and instead stick to index funds completely but that is his call. Overall he is doing good things.

Vanguard has changed since I retired in some ways and I went to their website and realize that now. I haven't done that in years outside of my balances page.

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37 minutes ago, tony said:

I didn't know that they now have a $50,000 min for admiral shares.  Wasn't it less at one time?  If I remember correctly it was $10,000 at some point . I guess that's understandable that I'm not aware of that  since I have no interest in investing in their managed funds. I am sure Newport is better now. I caught them exactly when the 403b transition started.  

For their index funds, Vanguard eliminated the Investor class and made them all Admiral with a 3k minimum. For most actively-managed funds (non-index) Admiral class has the 50k minimum. https://investor.vanguard.com/mutual-funds/share-classes 

 

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