Contributing to 403(b) without a match or IRA

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Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Contributing to 403(b) without a match or IRA

Post by caderader »

My wife who is a teacher in Alabama has a 403b plan at work she can contribute into. It has very few (if any) good low cost options. The school system also does not offer a match. I'm wondering if it wouldn't be better to contribute to an IRA since we can then invest in what we want (low cost mutual funds, likely from Vanguard). Currently our MAGI is below 60,000.
lack_ey
Posts: 6701
Joined: Wed Nov 19, 2014 10:55 pm

Re: Contributing to 403(b) without a match or IRA

Post by lack_ey »

Yes, use the IRA for that exact reason.

The order of preference for investing is usually
  • 401k (403b etc.) up to match
  • Paying back high interest rate debt
  • IRA
  • 401k up to maximum
  • etc.
Hopefully I didn't miss anything dumb there. So IRA would be top of the list for you, assuming you're not sitting on credit card debt or anything like that.
Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Re: Contributing to 403(b) without a match or IRA

Post by caderader »

lack_ey wrote:Yes, use the IRA for that exact reason.

The order of preference for investing is usually
  • 401k (403b etc.) up to match
  • Paying back high interest rate debt
  • IRA
  • 401k up to maximum
  • etc.
Hopefully I didn't miss anything dumb there. So IRA would be top of the list for you, assuming you're not sitting on credit card debt or anything like that.
No credit card debt. She does have some medium interest (~5%) student loan debt that we're able to pay more than the minimum on and still invest a modest amount. So would you recommend a traditional IRA or Roth. I assume our MAGI is similar now to what it will be post retirement. I've been leaning toward Roth because my income is low but I guess our income as a couple is what counts and it is just below $60,000 before taxes, health insurance etc.
Last edited by caderader on Fri Feb 13, 2015 8:21 pm, edited 2 times in total.
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: Contributing to 403(b) without a match or IRA

Post by JW-Retired »

caderader wrote:My wife who is a teacher in Alabama has a 403b plan at work she can contribute into. It has very few (if any) good low cost options. The school system also does not offer a match. I'm wondering if it wouldn't be better to contribute to an IRA since we can then invest in what we want (low cost mutual funds, likely from Vanguard). Currently our MAGI is below 60,000.
The trouble with that is she can only invest 1/3rd as much in the IRA. What are a few of the cheapest options? Maybe we can find something worthwhile?
JW
Retired at Last
Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Re: Contributing to 403(b) without a match or IRA

Post by caderader »

JW Nearly Retired wrote:
caderader wrote:My wife who is a teacher in Alabama has a 403b plan at work she can contribute into. It has very few (if any) good low cost options. The school system also does not offer a match. I'm wondering if it wouldn't be better to contribute to an IRA since we can then invest in what we want (low cost mutual funds, likely from Vanguard). Currently our MAGI is below 60,000.
The trouble with that is she can only invest 1/3rd as much in the IRA. What are a few of the cheapest options? Maybe we can find something worthwhile?
JW


Right now we're nowhere near to reaching the max for an IRA much less the 403(b). If I had to use her 403(b) the best provider is TIAA-CREF and I believe that they have one S&P index fund I would steer her toward with pretty low expense ratios ~.35% if I remember correctly.
Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Re: Contributing to 403(b) without a match or IRA

Post by caderader »

The best options I see are, TRIRX (TIAA-CREF Large-Cap Growth Index Fund) & TRSPX (TIAA-CREF S&P 500 Index Fund). All her other options are high cost actively managed funds, REIT's, and a traditional annuity...
DSInvestor
Posts: 11647
Joined: Sat Oct 04, 2008 11:42 am

Re: Contributing to 403(b) without a match or IRA

Post by DSInvestor »

Traditional 403b would be tax deductible but the investment options would be higher than if you invested in a Vanguard IRA.
Roth IRA at Vanguard would not offer a tax deduction but you'd have low cost investments.
Traditional IRA at Vanguard would offer a tax deduction and give you low cost investments. Covered by Employer plan with MAGI < 60K allows full IRA tax deduction.

With no match in the 403b and higher cost investments, Traditional IRA contributions may be the best way to go if you wish to make tax deductible contributions.

You can run some numbers with taxcaster to see how your Federal tax liability changes with or without Traditional IRA contributions.
Taxcaster is available here:
https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Note that IRA contributions for 2014 can be made until April 15, 2015. 403(b) contributions made now will be for 2015 tax year. If you wanted to reduce your 2014 tax liability you can do so with contributions to Traditional IRA for tax year 2014 $5,500 each.
Last edited by DSInvestor on Fri Feb 13, 2015 9:12 pm, edited 1 time in total.
Wiki
JW-Retired
Posts: 7189
Joined: Sun Dec 16, 2007 11:25 am

Re: Contributing to 403(b) without a match or IRA

Post by JW-Retired »

caderader wrote:
JW Nearly Retired wrote:
caderader wrote:My wife who is a teacher in Alabama has a 403b plan at work she can contribute into. It has very few (if any) good low cost options. The school system also does not offer a match. I'm wondering if it wouldn't be better to contribute to an IRA since we can then invest in what we want (low cost mutual funds, likely from Vanguard). Currently our MAGI is below 60,000.
The trouble with that is she can only invest 1/3rd as much in the IRA. What are a few of the cheapest options? Maybe we can find something worthwhile?
JW


Right now we're nowhere near to reaching the max for an IRA much less the 403(b). If I had to use her 403(b) the best provider is TIAA-CREF and I believe that they have one S&P index fund I would steer her toward with pretty low expense ratios ~.35% if I remember correctly.
Once you can save more than just the IRA amounts, ERs of 0.35% are pretty worthwhile and IMO you can get by fine with just a SP500 stock fund in the 401k. Put some bonds, international, and extended market funds in the VG IRAs to round it out.
JW
Retired at Last
Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Re: Contributing to 403(b) without a match or IRA

Post by caderader »

DSInvestor wrote:Traditional 403b would be tax deductible but the investment options would be higher than if you invested in a Vanguard IRA.
Roth IRA at Vanguard would not offer a tax deduction but you'd have low cost investments.
Traditional IRA at Vanguard would offer a tax deduction and give you low cost investments. Covered by Employer plan with MAGI < 60K allows full IRA tax deduction.

With no match in the 403b and higher cost investments, Traditional IRA contributions may be the best way to go if you wish to make tax deductible contributions.

You can run some numbers with taxcaster to see how your Federal tax liability changes with or without Traditional IRA contributions.
Taxcaster is available here:
https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Note that IRA contributions for 2014 can be made until April 15, 2014. 403(b) contributions made now will be for 2015 tax year. If you wanted to reduce your 2014 tax liability you can do so with contributions to Traditional IRA for tax year 2014 $5,500 each.
Thank you that's very clear.
Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Re: Contributing to 403(b) without a match or IRA

Post by caderader »

JW Nearly Retired wrote:
caderader wrote:
JW Nearly Retired wrote:
caderader wrote:My wife who is a teacher in Alabama has a 403b plan at work she can contribute into. It has very few (if any) good low cost options. The school system also does not offer a match. I'm wondering if it wouldn't be better to contribute to an IRA since we can then invest in what we want (low cost mutual funds, likely from Vanguard). Currently our MAGI is below 60,000.
The trouble with that is she can only invest 1/3rd as much in the IRA. What are a few of the cheapest options? Maybe we can find something worthwhile?
JW


Right now we're nowhere near to reaching the max for an IRA much less the 403(b). If I had to use her 403(b) the best provider is TIAA-CREF and I believe that they have one S&P index fund I would steer her toward with pretty low expense ratios ~.35% if I remember correctly.
Once you can save more than just the IRA amounts, ERs of 0.35% are pretty worthwhile and IMO you can get by fine with just a SP500 stock fund in the 401k. Put some bonds, international, and extended market funds in the VG IRAs to round it out.
JW
Thanks, this makes sense; however, I'm still not clear if TIAA-CREF is actually a provider. The AEA (Alabama Educators Association) lists TIAA-CREF as their provider, however my wife's school district (which will remain unnamed) does not list TIAA-CREF in the benefits brochure under their investment section. The only list American Fidelity Assurance and VALIC. Both those guys are peddling variable annuities with fees of ~2.5% and surrender charges. I am so upset that our educators are like sheep led to the slaughter, most of them are hard working ladies and men without much financial knowledge. My wife started teaching before we were married and I found out that one of these high-pressure salesmen signed her and most of the other teachers at the school up for his "savings account" which is what he told them the variable rate annuity was. This really sickens me that our school systems don't take care of these teachers better. Anyway I think a few phone calls tomorrow should clear things up.
DSInvestor
Posts: 11647
Joined: Sat Oct 04, 2008 11:42 am

Re: Contributing to 403(b) without a match or IRA

Post by DSInvestor »

caderader wrote:
DSInvestor wrote:Traditional 403b would be tax deductible but the investment options would be higher than if you invested in a Vanguard IRA.
Roth IRA at Vanguard would not offer a tax deduction but you'd have low cost investments.
Traditional IRA at Vanguard would offer a tax deduction and give you low cost investments. Covered by Employer plan with MAGI < 60K allows full IRA tax deduction.

With no match in the 403b and higher cost investments, Traditional IRA contributions may be the best way to go if you wish to make tax deductible contributions.

You can run some numbers with taxcaster to see how your Federal tax liability changes with or without Traditional IRA contributions.
Taxcaster is available here:
https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Note that IRA contributions for 2014 can be made until April 15, 2015. 403(b) contributions made now will be for 2015 tax year. If you wanted to reduce your 2014 tax liability you can do so with contributions to Traditional IRA for tax year 2014 $5,500 each.
Thank you that's very clear.
Wiki
DSInvestor
Posts: 11647
Joined: Sat Oct 04, 2008 11:42 am

Re: Contributing to 403(b) without a match or IRA

Post by DSInvestor »

caderader wrote:
DSInvestor wrote:Traditional 403b would be tax deductible but the investment options would be higher than if you invested in a Vanguard IRA.
Roth IRA at Vanguard would not offer a tax deduction but you'd have low cost investments.
Traditional IRA at Vanguard would offer a tax deduction and give you low cost investments. Covered by Employer plan with MAGI < 60K allows full IRA tax deduction.

With no match in the 403b and higher cost investments, Traditional IRA contributions may be the best way to go if you wish to make tax deductible contributions.

You can run some numbers with taxcaster to see how your Federal tax liability changes with or without Traditional IRA contributions.
Taxcaster is available here:
https://turbotax.intuit.com/tax-tools/c ... taxcaster/

Note that IRA contributions for 2014 can be made until April 15, 2014. 403(b) contributions made now will be for 2015 tax year. If you wanted to reduce your 2014 tax liability you can do so with contributions to Traditional IRA for tax year 2014 $5,500 each.
Thank you that's very clear.
Sorry, I had a typo on the deadline for 2014 IRA contributions. It is April 15, 2015.
Wiki
Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Re: Contributing to 403(b) without a match or IRA

Post by caderader »

I also need someone to help me understand the surrender charges in her current plan. Since this is her first year teaching she currently has very little money in the account. It won't be a problem to roll this over to a new TIAA-CREF account if I find out they are a provider will it? I mean will it be an ongoing charge after the money has been rolled over or will it just take a bite out of the money when I transfer it?
Topic Author
caderader
Posts: 17
Joined: Fri Feb 13, 2015 10:35 am

Re: Contributing to 403(b) without a match or IRA

Post by caderader »

caderader wrote:
JW Nearly Retired wrote:
caderader wrote:
JW Nearly Retired wrote:
caderader wrote:My wife who is a teacher in Alabama has a 403b plan at work she can contribute into. It has very few (if any) good low cost options. The school system also does not offer a match. I'm wondering if it wouldn't be better to contribute to an IRA since we can then invest in what we want (low cost mutual funds, likely from Vanguard). Currently our MAGI is below 60,000.
The trouble with that is she can only invest 1/3rd as much in the IRA. What are a few of the cheapest options? Maybe we can find something worthwhile?
JW


Right now we're nowhere near to reaching the max for an IRA much less the 403(b). If I had to use her 403(b) the best provider is TIAA-CREF and I believe that they have one S&P index fund I would steer her toward with pretty low expense ratios ~.35% if I remember correctly.
Once you can save more than just the IRA amounts, ERs of 0.35% are pretty worthwhile and IMO you can get by fine with just a SP500 stock fund in the 401k. Put some bonds, international, and extended market funds in the VG IRAs to round it out.
JW
Thanks, this makes sense; however, I'm still not clear if TIAA-CREF is actually a provider. The AEA (Alabama Educators Association) lists TIAA-CREF as their provider, however my wife's school district (which will remain unnamed) does not list TIAA-CREF in the benefits brochure under their investment section. The only list American Fidelity Assurance and VALIC. Both those guys are peddling variable annuities with fees of ~2.5% and surrender charges. I am so upset that our educators are like sheep led to the slaughter, most of them are hard working ladies and men without much financial knowledge. My wife started teaching before we were married and I found out that one of these high-pressure salesmen signed her and most of the other teachers at the school up for his "savings account" which is what he told them the variable rate annuity was. This really sickens me that our school systems don't take care of these teachers better. Anyway I think a few phone calls tomorrow should clear things up.
After some more research I've found that her system only offers Valic and America Fidelity Assurance variable rate annuities. I'm a little hot right now. Does anybody have experience with lobbying a school district to get other plan providers?
terran
Posts: 2966
Joined: Sat Jan 10, 2015 9:50 pm

Re: Contributing to 403(b) without a match or IRA

Post by terran »

Also remember that you can both contribute to an IRA even if you don't have enough income alone for it -- as long as your wife and you together have more income than you contribute. That means $11,000/year right now which you can put into vanguard with all the low cost funds everyone here talks about.
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