administrative fees

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administrative fees

Postby munnix » Sun Jan 27, 2013 10:08 am

Recently received my annual report from the organization that manages my 403(b). They are charging .11 annually for the balance of my account. I'm fully vested in Vanguard's Target Retirement 2015 (VTXVX) fund. This has me paying .28 for the fund, which to me still seems like a bargain. I just wonder if it truly is? Would it make better economic sense to put my funds, beyond my employer's match in a taxable (Admiral shares) Vanguard fund? My wife and I both have Roths, which we have already maxed out for 2013. I'm at a 15% marginal tax rate.
Would appreciate some Boglehead insights. Just a little flustered to think this one through clearly.
I've been reading the forum regularly for the past five or so years, just rarely post. Thanks for all of the great advice and view.
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Re: administrative fees

Postby bUU » Sun Jan 27, 2013 10:12 am

I believe you'll find elements of the answer to your question in a thread (and referenced threads) that I recently posted:

viewtopic.php?f=1&t=109637
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Re: administrative fees

Postby Dandy » Sun Jan 27, 2013 10:40 am

11 basis points equals 11/100th of 1%. Even with the 15 basis point charge for your fund this is still a very low cost investment. Putting money in a taxable account in the 15% tax bracket is not a bad idea - you will pay some tax on the dividends and capital gain distributions from you taxable investment but won't pay taxes on your total investment. With a fund you pay the expense ratio and administrative charges on the entire value of the account.
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Re: administrative fees

Postby KyleAAA » Sun Jan 27, 2013 10:47 am

Do you expect to stay in the 15% tax bracket forever or do you think you'll eventually earn more money? Will you stay at your current employer forever of will you quit in a few years and roll your money over to an IRA with Vanguard? All else being equal, I'd vastly prefer keeping my money in the tax-advantaged account. It might make sense right NOW to invest in a taxable account, but how likely are all those various assumptions to hold over the next 30 years?
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Re: administrative fees

Postby dbr » Sun Jan 27, 2013 10:53 am

munnix wrote:Recently received my annual report from the organization that manages my 403(b). They are charging .11 annually for the balance of my account. I'm fully vested in Vanguard's Target Retirement 2015 (VTXVX) fund. This has me paying .28 for the fund, which to me still seems like a bargain. I just wonder if it truly is? Would it make better economic sense to put my funds, beyond my employer's match in a taxable (Admiral shares) Vanguard fund? My wife and I both have Roths, which we have already maxed out for 2013. I'm at a 15% marginal tax rate.
Would appreciate some Boglehead insights. Just a little flustered to think this one through clearly.
I've been reading the forum regularly for the past five or so years, just rarely post. Thanks for all of the great advice and view.


I think very roughly speaking your costs would have to be ten times (ok, five times at your tax rate, but still a lot) what they are before eschewing tax deferment of your earned income would make sense.

One of the most nefarious features of the 401K system is that it is actually possible for the investor to come out ahead even if being robbed blind by plan providers along the way, and you have very, very good costs.
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Re: administrative fees

Postby munnix » Sun Jan 27, 2013 1:06 pm

Thanks for the replies. Been in my current position for 27 years. No real fear of promotion or getting out of the 15% tax bracket. Hoping to retire within the next four years and then to rollover the 403(b). Wish I knew about Jack Bogle and his investing philosophy earlier in my career. Would have made fewer bad decisions.
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Re: administrative fees

Postby theduke » Sun Jan 27, 2013 5:25 pm

I can't answer your question, but will add a little more information. If you invest in a taxable account and stay in the 15% tax bracket, then you will pay no taxes on long term capital gains or qualified dividends. A stock fund like Vanguard Total Stock Index pays qualified dividends, but a bond fund like Vanguard Total Bond Index Fund is not qualified dividends. So if you invest in the Target Retirement 2015 Fund with it's bond proportion in a taxable account, it may not be the best choice.

edit to add. State taxes could vary.
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Re: administrative fees

Postby nwffdiver » Sun Jan 27, 2013 6:13 pm

munnix wrote: Wish I knew about Jack Bogle and his investing philosophy earlier in my career. Would have made fewer bad decisions.


I think a lot of us here would agree with that statement! :greedy
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Re: administrative fees

Postby munnix » Sun Jan 27, 2013 6:52 pm

theduke wrote:I can't answer your question, but will add a little more information. If you invest in a taxable account and stay in the 15% tax bracket, then you will pay no taxes on long term capital gains or qualified dividends. A stock fund like Vanguard Total Stock Index pays qualified dividends, but a bond fund like Vanguard Total Bond Index Fund is not qualified dividends. So if you invest in the Target Retirement 2015 Fund with it's bond proportion in a taxable account, it may not be the best choice.

edit to add. State taxes could vary.

Thanks theduke. If I were to put funds into a taxable account it would most likely be in either the Total Stock Index or the Value Index. The 2015 fund is my employer's plan.
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Re: administrative fees

Postby livesoft » Sun Jan 27, 2013 6:52 pm

If you are in the 15% tax bracket now, you will probably be in the 0% tax bracket in retirement. Thus maxing out your 403(b) will give you an extra 15% on the money you put in there. The 0.11% charge is very small compared to the 15% you get even if the 0.11% is multiplied by 136, you still come out ahead.
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