Better use taxable than horrible 403b?

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bad403b
Posts: 1
Joined: Tue Jan 30, 2018 1:04 am

Better use taxable than horrible 403b?

Post by bad403b » Tue Jan 30, 2018 1:32 am

Hello long time lurker,
My partner is starting a new job with a 403b that has a 3% match, but the fees are above the 1.7% which I have read to be the point to consider only using a taxable account. Total expected time at the job is believed to be atleast 3 years.

Plan options are:
Oppenheimer Real Estate ER 2.68%
American Funds Cap World Growth and Income ER 2.35%
American EuroPacific Growth ER 2.39%
American Funds New Perspective ER 2.36%
Invesco Developing Markets ER 2.68%
Janus Henderson Overseas ER 2.16%
Templeton Foreign Small-cap ER 2.47%
Royce Total Return Mild-cap ER 2.88%
Columbia Mid Cap Value ER 2.42%
American Funds American Mutual ER 2.22%
American Funds Fundamental Investors ER 2.21%
American Funds The Growth Fund of America ER 2.23%
American Funds Washington Mutual Investors ER 2.20%
Calvert Equity Portfolio ER Franklin Growth ER 2.34%
Invesco Comstock ER 2.11%
Neuberger Berman Socially Responsive ER 2.30%
Asset allocation/Balanced BlackRock Global Allocation ER 2.41%
BlackRock LifePath Dymamic 2020 ER 2.47%
BlackRock LifePath Dynamic 2025 ER 2.51%
BlackRock Life Path Dynamic 2030 ER 2.47%
BlackRock Life Path Dynamic 2035 ER. 2.52%
Black Rock LifePath Dynamic 2040 ER. 2.47%
BlackRock LifePath Dynamic 2045 ER 2.54%
BlackRock LifePath Dynamic 2050 ER 2.47%
BlackRock LifePath Dynamic 2055 ER 2.62%
BlackRock LifePath Dynamic Retirement ER 2.48%
Janus Henderson Balanced Bonds ER 2.33%
JPMorgan Core Bond ER 2.24%
JPMorgan U.S. Government Money Market ER 1.96%

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FiveK
Posts: 4369
Joined: Sun Mar 16, 2014 2:43 pm

Re: Better use taxable than horrible 403b?

Post by FiveK » Tue Jan 30, 2018 7:56 am

bad403b wrote:
Tue Jan 30, 2018 1:32 am
My partner is starting a new job with a 403b that has a 3% match, but the fees are above the 1.7% which I have read to be the point to consider only using a taxable account. Total expected time at the job is believed to be atleast 3 years.

Plan options are: <list of >2% fee funds>
There is more to it than ">1.7%". See Expensive or mediocre choices and references in that wiki article for details.

And those are horrible fees.

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CyclingDuo
Posts: 1327
Joined: Fri Jan 06, 2017 9:07 am

Re: Better use taxable than horrible 403b?

Post by CyclingDuo » Tue Jan 30, 2018 10:58 am

bad403b wrote:
Tue Jan 30, 2018 1:32 am
Hello long time lurker,
My partner is starting a new job with a 403b that has a 3% match, but the fees are above the 1.7% which I have read to be the point to consider only using a taxable account. Total expected time at the job is believed to be atleast 3 years.

Plan options are:
Oppenheimer Real Estate ER 2.68%
American Funds Cap World Growth and Income ER 2.35%
American EuroPacific Growth ER 2.39%
American Funds New Perspective ER 2.36%
Invesco Developing Markets ER 2.68%
Janus Henderson Overseas ER 2.16%
Templeton Foreign Small-cap ER 2.47%
Royce Total Return Mild-cap ER 2.88%
Columbia Mid Cap Value ER 2.42%
American Funds American Mutual ER 2.22%
American Funds Fundamental Investors ER 2.21%
American Funds The Growth Fund of America ER 2.23%
American Funds Washington Mutual Investors ER 2.20%
Calvert Equity Portfolio ER Franklin Growth ER 2.34%
Invesco Comstock ER 2.11%
Neuberger Berman Socially Responsive ER 2.30%
Asset allocation/Balanced BlackRock Global Allocation ER 2.41%
BlackRock LifePath Dymamic 2020 ER 2.47%
BlackRock LifePath Dynamic 2025 ER 2.51%
BlackRock Life Path Dynamic 2030 ER 2.47%
BlackRock Life Path Dynamic 2035 ER. 2.52%
Black Rock LifePath Dynamic 2040 ER. 2.47%
BlackRock LifePath Dynamic 2045 ER 2.54%
BlackRock LifePath Dynamic 2050 ER 2.47%
BlackRock LifePath Dynamic 2055 ER 2.62%
BlackRock LifePath Dynamic Retirement ER 2.48%
Janus Henderson Balanced Bonds ER 2.33%
JPMorgan Core Bond ER 2.24%
JPMorgan U.S. Government Money Market ER 1.96%
Yup. Those are horrible. :annoyed

Almost reminds me of mutual fund fees back in the late 80's, early 90's.

At the bare minimum, have your partner invest at least enough every paycheck to get the match. Is this a job/company your partner is planning on staying at for a long period of time given the opportunity? We could show you something like this which illustrates your partner will have to save twice as much as somebody with a lower cost plan...

http://www.retireearlyhomepage.com/twopercentrule.html

Image

Having to save 2x as much as workers with lower cost plans would lead me to be searching for other employment opportunities making sure I had studied their benefit plans. Certainly worthy of an employee discussion within the organization to see if HR/Management could look into lower cost options for the employees (retention being an issue).

Step one - at least get the match. Beyond that, read the Wiki and look for all possible options. Is your plan better than your partner's plan? Could you boost your plan to the max providing it is lower cost?

Nate79
Posts: 2117
Joined: Thu Aug 11, 2016 6:24 pm
Location: Portland, OR

Re: Better use taxable than horrible 403b?

Post by Nate79 » Tue Jan 30, 2018 11:04 am

Are you sure that there is not another provider that could be an option, or perhaps a 457 or something like that? Many people do not know that they may have multiple providers available, one of which may have low costs.

jmk
Posts: 322
Joined: Tue Nov 01, 2011 7:48 pm

Re: Better use taxable than horrible 403b?

Post by jmk » Tue Jan 30, 2018 5:54 pm

The best calculator I know for figuring it out is the tab "401k vs Taxable" on this downloadable spreadsheet from another forum:

https://drive.google.com/file/d/0B45krB ... p=sharing/

You'll need to enter years before rolling over, expected returns in each asset class, extra fees, and expected taxes.

My gut says with that kind of fee not worth it, unless it's the only way to lower your tax bracket.

Jonathan

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grabiner
Advisory Board
Posts: 21845
Joined: Tue Feb 20, 2007 11:58 pm
Location: Columbia, MD

Re: Better use taxable than horrible 403b?

Post by grabiner » Thu Feb 01, 2018 12:05 am

bad403b wrote:
Tue Jan 30, 2018 1:32 am
My partner is starting a new job with a 403b that has a 3% match, but the fees are above the 1.7% which I have read to be the point to consider only using a taxable account. Total expected time at the job is believed to be atleast 3 years.
My rule of thumb is to consider taxable if the extra cost multiplied by the number of years you will be stuck with the plan exceeds twice your tax rate on qualified dividends, usually 30%. Thus, 1.7% expenses (versus a low-cost 0.2%) are enough to consider taxable investing if you are sure you will stay 20 years with the employer. Your own example, with fees over 2%, cuts the break-even to 15 years, assuming no state taxes. "At least 3 years" may not be close to long enough.
Wiki David Grabiner

BigMoneyNoWhammies
Posts: 74
Joined: Tue Jul 11, 2017 11:58 am

Re: Better use taxable than horrible 403b?

Post by BigMoneyNoWhammies » Thu Feb 01, 2018 12:18 am

bad403b wrote:
Tue Jan 30, 2018 1:32 am
Hello long time lurker,
My partner is starting a new job with a 403b that has a 3% match, but the fees are above the 1.7% which I have read to be the point to consider only using a taxable account. Total expected time at the job is believed to be atleast 3 years.

Plan options are:
Oppenheimer Real Estate ER 2.68%
American Funds Cap World Growth and Income ER 2.35%
American EuroPacific Growth ER 2.39%
American Funds New Perspective ER 2.36%
Invesco Developing Markets ER 2.68%
Janus Henderson Overseas ER 2.16%
Templeton Foreign Small-cap ER 2.47%
Royce Total Return Mild-cap ER 2.88%
Columbia Mid Cap Value ER 2.42%
American Funds American Mutual ER 2.22%
American Funds Fundamental Investors ER 2.21%
American Funds The Growth Fund of America ER 2.23%
American Funds Washington Mutual Investors ER 2.20%
Calvert Equity Portfolio ER Franklin Growth ER 2.34%
Invesco Comstock ER 2.11%
Neuberger Berman Socially Responsive ER 2.30%
Asset allocation/Balanced BlackRock Global Allocation ER 2.41%
BlackRock LifePath Dymamic 2020 ER 2.47%
BlackRock LifePath Dynamic 2025 ER 2.51%
BlackRock Life Path Dynamic 2030 ER 2.47%
BlackRock Life Path Dynamic 2035 ER. 2.52%
Black Rock LifePath Dynamic 2040 ER. 2.47%
BlackRock LifePath Dynamic 2045 ER 2.54%
BlackRock LifePath Dynamic 2050 ER 2.47%
BlackRock LifePath Dynamic 2055 ER 2.62%
BlackRock LifePath Dynamic Retirement ER 2.48%
Janus Henderson Balanced Bonds ER 2.33%
JPMorgan Core Bond ER 2.24%
JPMorgan U.S. Government Money Market ER 1.96%
Contribute 3% so they get the full match, which is effectively an automatic 100% return on investment (hopefully sooner rather than later your partner is able to find new employment with better, lower cost options that they can roll over into). If I was in this position, I'd then take whatever funds I would have otherwise contributed to the 403b and fund an IRA (assuming this is possible for them given their income level), and then if there were funds left after maxing the IRA contribution, possibly look into a taxable account. Take advantage of tax advantaged account space whenever possible. Is your partner eligible for any other tax advantaged accounts like 529 or HSA? Could look into contributing to those as well assuming they fit your life situation (kids' education, med expenses and HDHP).

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