Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

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wolverinesman
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Joined: Sat May 19, 2018 7:58 am

Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by wolverinesman » Sat May 19, 2018 8:08 am

I am a teacher, 35, whose employer offers a non-matching 403(b). Next year I'll make around $98,000, which is the top of my district's pay scale. Unless I take on some extra clubs or something, my salary will only get a slight cost of living increase every year (I think i'ts around 2.5% each year for the next two years). My wife hasn't been working, but when she goes back to work next year she'll probably make around $30,000-$50,000 depending on the hours she gets.

We haven't contributed much to our retirement (probably have around $45,000 total in old 401K and IRA). At this point, does it make sense for me to open a non-matching 403(b) from my employer or a Roth IRA? I'm not sure if it's better for me to pay the taxes now or later. A lot of teachers I know just use AXA and have them decide everything, but I've read horror stories about them, and hear they have crazy fees. So I've been trying to educate myself a lot more, and want to open one of these in a Target Retirement Fund with Vanguard (which is offered through my employer) and start contributing right away, but I don't know which is better for me now.

Does anyone know of a general guide or rule of thumb for deciding what is better for my specific scenario? I really appreciate any help or guidance anyone can provide. Thank you so much!

Edit: I live in Connecticut, which has one of the most underfunded pension systems in the country. I fear that 30 years from now when I go to retire it will be gone, and I haven't paid into Social Security, so it would be a complete doomsday scenario for me. Now if all goes well and I retire at 60 I believe I'll get something like 62% of my highest 3 years of pay, and if I go to 65 I'll get 70% (again that's as of today). Like I said, right now I'm around $100,000 and will only get a coast of living increase, but 30 years of cost of living could be quite a bit I suppose.

I am not sure if the 403(b) options are annuities or anything like that (I'm not even sure how to check on that). The providers I can choose from are:
Voya Retirement Insurance and Annuity Company
AXA
Great American
Oppenheimer
Mass Mutual
MetLife
Security Benefit
Fidelity
Vanguard

Most of the research I did online seemed to suggest Fidelity and Vanguard were the best choices because of their low fees, but this board seems to know more than anyone I've stumbled across on the web and am more than appreciative for all the help!



EDIT 2: My taxable income today is at the low end of 25% (the bottom is around $76K and we're around $83K), but when my wife goes back to work it will be around around $106K and the top of the bracket is $153K, so we'll probably never get bumped up to the 28%.

I live in CT, and according to a bracket I found online we are at 5.5% (which is between $100,000-$200,000), so we'll probably always be in that as well.

That Wiki article talks about whether a traditional pension would be large enough to meet expected retirement expenses and I would think so. I just don't know what the CT TRB will look like 30 years from now. So if it stays as it is today then it will be perfect. If something happens and it changes or goes away then it may not be. So unlike many of my colleagues, I want to try and put myself in the best position for whatever happens.

I honestly can't thank you all enough for your help!!!
Last edited by wolverinesman on Sat May 19, 2018 9:02 pm, edited 5 times in total.

j0nnyg1984
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by j0nnyg1984 » Sat May 19, 2018 8:45 am

your situation doesn't sound very specific or special, tbh.

my general rule of thumb:
  • 401k (or equivalent) to match
  • HSA to max
  • IRA to max
  • 401k (or equivalent) to max
Since you don't get a match, I would skip the 403b until the other two buckets are full.

KlangFool
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by KlangFool » Sat May 19, 2018 8:56 am

wolverinesman wrote:
Sat May 19, 2018 8:08 am

At this point, does it make sense for me to open a non-matching 403(b) from my employer or a Roth IRA? I'm not sure if it's better for me to pay the taxes now or later. A lot of teachers I know just use AXA and have them decide everything, but I've read horror stories about them, and hear they have crazy fees.
wolverinesman,

1) Find out exactly what are the fees and look for the lowest cost option. Hopefully, there is a lower-cost S&P 500 index fund.

2) The answer is to do both. Contribute to the Trad. 403B and put the tax savings into the Roth IRAs (yours and your wife's).

3) If and when your wife goes to work, contribute to her Trad. 401K too.

At your income level, you are paying a lot of taxes. So, even if the 403B fee is high, it might still worth your effort.

KlangFool

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ruralavalon
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by ruralavalon » Sat May 19, 2018 10:16 am

Welcome to the forum :) .

Traditional deductible contributions are usually better for most people most of the time.

Will you be eligible for Social Security? Will you be eligible for a significant pension?

What other providers are a available in your 403b plan? You are right to stear clear of AXA, there may be better choices. Is Vanguard one of the providers available in your 403b plan?

Please simply add this to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

If there is anything decent offered in your 403b, then it's probably worthwhile to contribute because of the value of the tax deduction and deferral even without an employer match.

If there is nothing decent offered in your 403b another possibility is traditional deductible IRAs, one for each of you.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

krow36
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by krow36 » Sat May 19, 2018 12:19 pm

The Wiki has some guidelines for prioritizing retirement investments:
https://www.bogleheads.org/wiki/Priorit ... nvestments

Although very few teachers have a 403b match, it is always recommended they contribute as much as possible. A 457 is often available and is also definitely worth contributing to if possible. Especially at the beginning of their career. By reducing your taxable income, you will save a lot in taxes. It’s likely your effective tax rate in retirement will be lower than you current tax bracket, so postponing paying taxes makes sense.

Teachers usually have a pension but it usually does not replace their working income. It may or may not include a COLA to keep up with inflation. My teacher’s retirement had a COLA that was removed by the state legislature. My pension now has about half the purchasing power it had when it started 26 years ago. We rely on our 403b accounts (now traditional and Roth IRAs) and a taxable account to supplement our pensions.

Another consideration is the possibility of not earning a full pension for reasons of health, mental or physical. Burnout is fairly common.

If Vanguard is on your district's 403b provider list, they would be an excellent choice. Their Target Retirement funds are a very reasonable choice.

I think you might benefit from reading this thread from last year on financial advice for teachers. Notice that maxing tax-deferred accounts is frequently mentioned. viewtopic.php?t=220126

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CyclingDuo
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by CyclingDuo » Sat May 19, 2018 2:05 pm

wolverinesman wrote:
Sat May 19, 2018 8:08 am
I am a teacher, 35, whose employer offers a non-matching 403(b). Next year I'll make around $98,000, which is the top of my district's pay scale. Unless I take on some extra clubs or something, my salary will only get a slight cost of living increase every year (I think i'ts around 2.5% each year for the next two years). My wife hasn't been working, but when she goes back to work next year she'll probably make around $30,000-$50,000 depending on the hours she gets.

We haven't contributed much to our retirement (probably have around $45,000 total in old 401K and IRA). At this point, does it make sense for me to open a non-matching 403(b) from my employer or a Roth IRA? I'm not sure if it's better for me to pay the taxes now or later. A lot of teachers I know just use AXA and have them decide everything, but I've read horror stories about them, and hear they have crazy fees. So I've been trying to educate myself a lot more, and want to open one of these in a Target Retirement Fund with Vanguard (which is offered through my employer) and start contributing right away, but I don't know which is better for me now.

Does anyone know of a general guide or rule of thumb for deciding what is better for my specific scenario? I really appreciate any help or guidance anyone can provide. Thank you so much!
Do you have a mandatory pension plan that you and your employer are contributing to on your behalf? Sounds like the 403b is an additional plan that is voluntary (possible 457b option as well)?
wolverinesman wrote:
Sat May 19, 2018 8:08 am
We haven't contributed much to our retirement (probably have around $45,000 total in old 401K and IRA). At this point, does it make sense for me to open a non-matching 403(b) from my employer or a Roth IRA?
If you contribute to a traditional 403b (as opposed to a Roth 403b) - it will be from pre-tax salary and lower your MAGI which will come in handy for lower income taxes as your spouse goes back to work and your gross income bumps up to $128K - $148K. If you could, max out the 403b with the new pay bump, and after the $18.5K is put in there - you and your wife could both max out your Roth IRA's for a total of $11K going into those post-tax accounts. That's $27.5K, or potentially 21% of your gross income at $128K or 18.5% of your gross at $148K. Both are reasonable percentages to be contributing to your retirement accounts and will benefit from the power of time & compounding.

If you also have a pension where a portion of your monthly pre-tax salary goes (and is matched by your employer), then even better as you have a higher percentage going to retirement funds. Some states - due to their pension plans - mean that teachers are not paying into Social Security. Are you in one of those states, or will you also be eligible for SS?

In terms of the 403b, list what plans you have available as you really need to pick one - and the funds within it - to keep fees as low as possible. Is there a plan you have access to where the annual administrative fees and the underlying fund fees combined are less than .5%. The lower, the better.

We need more information on the plans available to you beyond AXA.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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MNGopher
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by MNGopher » Sat May 19, 2018 2:36 pm

Unless both of the following are true, I think tax deferred is the way to go.

a.) all your 403B choices are all annuities and/or have high expense ratios.
b.) your expected state pension + social security is greater than your current gross income.

The social security website and your state pension site should both be able to project estimates for you.

wolverinesman
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by wolverinesman » Sat May 19, 2018 4:54 pm

I live in Connecticut, which has one of the most underfunded pension systems in the country. I fear that 30 years from now when I go to retire it will be gone, and I haven't paid into Social Security, so it would be a complete doomsday scenario for me. Now if all goes well and I retire at 60 I believe I'll get something like 62% of my highest 3 years of pay, and if I go to 65 I'll get 70% (again that's as of today). Like I said, right now I'm around $100,000 and will only get a coast of living increase, but 30 years of cost of living could be quite a bit I suppose.

I am not sure if the 403(b) options are annuities or anything like that (I'm not even sure how to check on that). The providers I can choose from are:
Voya Retirement Insurance and Annuity Company
AXA
Great American
Oppenheimer
Mass Mutual
MetLife
Security Benefit
Fidelity
Vanguard

Most of the research I did online seemed to suggest Fidelity and Vanguard were the best choices because of their low fees, but this board seems to know more than anyone I've stumbled across on the web and am more than appreciative for all the help!

BashDash
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by BashDash » Sat May 19, 2018 5:49 pm

You struck gold having fidelity and vanguard as providers. Make a low cost three fund index portfolio at an allocation to your desire and you will be miles ahead of your colleagues.

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ruralavalon
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Location: Illinois

Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by ruralavalon » Sat May 19, 2018 7:14 pm

wolverinesman wrote:
Sat May 19, 2018 4:54 pm
I live in Connecticut, which has one of the most underfunded pension systems in the country. I fear that 30 years from now when I go to retire it will be gone, and I haven't paid into Social Security, so it would be a complete doomsday scenario for me. Now if all goes well and I retire at 60 I believe I'll get something like 62% of my highest 3 years of pay, and if I go to 65 I'll get 70% (again that's as of today). Like I said, right now I'm around $100,000 and will only get a coast of living increase, but 30 years of cost of living could be quite a bit I suppose.

I am not sure if the 403(b) options are annuities or anything like that (I'm not even sure how to check on that). The providers I can choose from are:
Voya Retirement Insurance and Annuity Company
AXA
Great American
Oppenheimer
Mass Mutual
MetLife
Security Benefit
Fidelity
Vanguard

Most of the research I did online seemed to suggest Fidelity and Vanguard were the best choices because of their low fees, but this board seems to know more than anyone I've stumbled across on the web and am more than appreciative for all the help!
The two best providers are likely Vanguard and Fidelity, you are fortunate to have two good possibilities.

Now you need to look at each to see whether Vanguard or Fidelity offers the better fund choices in your 403b plan.

For both companies please list the funds offered in each of these categories --
1) what target date funds are offered at what expense ratios? (Fidelity has both low expense Fidelity Freedom Index Funds, and high expense Fidelity Freedom Funds, it's important to know which are offered for you);
2) what are the 2-3 U.S. stock funds offered which have the lowest expense ratios;
3) what are the 2-3 international stock funds offered which have the lowest expense ratios; and
4) what are the 2-3 bond funds offered which have the lowest expense ratios.

For the funds please give fund names, tickers and expense ratios.

Again please simply add this to your original post using the edit button.

. . . . .

More information is needed to discuss traditional versus Roth contributions to your 403b.

What will your federal tax bracket be for 2018? Here are calculators you can use to estimate your federal tax bracket. First estimate your "taxable income". money chimp, "Tax Calculator". Then use your "taxable income" estimate your "tax bracket". Moneychimp, "Federal Tax Brackets".

What is your tax filing status?

What is your tax rate for State income tax?

Please simply add this to your original post using the edit button.

With no Social Security income expected, it may be that traditional contributions will be better. With your income currently at $100k Roth contributions may be better.

Retirement usually means that employment income has ended. Most people are in a lower tax bracket in retirement. The income tax code is progressive, with a lower tax rate for lower income. Therefore, for most people traditional 403b or 401k contributions will probably be better. TFB blog post, "The case against Roth 401k". "I think for most people the majority, if not 100%, of the contribution should go to a Traditional 401(k)."

I see your concern about the pension not being there for you. A reliable pension could change that analysis, so that Roth contributions could likely be better if you will actually receive a significant pension. TFB blog post, "Most TSP participants should switch to the Roth TSP". That post discussed the effect of a federal pension, but the analysis should hold for other pensions.

Wiki article, "Traditional vs Roth".
"Tax considerations:
* If your current marginal tax rate is 15% or less, prefer a Roth.
* If you expect to have higher marginal rates than your current marginal rate for most of your career, prefer a Roth.
* If you will have a traditional account or a pension large enough to meet your expected retirement expenses (and you expect to take that pension shortly after retiring), prefer a Roth.
* Otherwise, prefer a traditional account."
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

krow36
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by krow36 » Sat May 19, 2018 8:37 pm

I agree with ruralavalon and Bash Dash that you should use either Fidelity or Vanguard. They both offer a generic 403b plan to K-12 school districts which can be checked out at 403bcompare.com. https://www.403bcompare.com/Vendors/Browse
Fidelity
$24/yr custodial fee
Fidelity Freedom Index 20XX, ER 0.15%
or
Fidelity Total Market Index Premier (FSTVX), 0.04%
Fidelity US Bond Index Premier (FSTVX), 0.04%
Fidelity International Index Premier (FSIVX), 0.06%

Vanguard
$5/month
VG Target Retirement 20XX, ER 0.15%
or
VG Total Stock Mkt Index Admiral,(VTSAX) 0.04%
VG Total Int’l Stock Mkt Index Admiral, (VTIAX) 0.11%
VG Total Bond Mkt Index Admiral, (VBTLX) 0.05%

Vanguard has contracted out their 403b plan to Newport Group a year or so ago, and there has been some complaints about NG’s service. I expect that any problems will eventually be fixed, but you might want to consider Fidelity instead of Vanguard.

wolverinesman
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by wolverinesman » Sat May 19, 2018 9:08 pm

Thank you very much for that chart, I was trying to find it all on their websites, and that site you linked to is MUCH easier! If their prices are all so similar, is Fidelity at $36 less a year the better option? I heard they recently dropped their prices to match Vanguards, but can they jack them back up at any time? I'm sorry, because I am trying to learn as much as I can as quickly as I can, but there's a pretty steep learning curve.

I do feel MUCH better knowing I made the right decision to not go with AXA. It's too bad, because like I said almost every teacher at the two schools I've worked at use them. They come into the school and try to make it easy, but it sounds like that comes with a pretty big price. You are all so amazing to just hang out on these forums and help people!

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CyclingDuo
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by CyclingDuo » Sat May 19, 2018 10:07 pm

wolverinesman wrote:
Sat May 19, 2018 4:54 pm
I live in Connecticut, which has one of the most underfunded pension systems in the country. I fear that 30 years from now when I go to retire it will be gone, and I haven't paid into Social Security, so it would be a complete doomsday scenario for me. Now if all goes well and I retire at 60 I believe I'll get something like 62% of my highest 3 years of pay, and if I go to 65 I'll get 70% (again that's as of today). Like I said, right now I'm around $100,000 and will only get a coast of living increase, but 30 years of cost of living could be quite a bit I suppose.
So you are paying into the pension system, but not SS. It's hard to predict the funding or underfunding of a state pension and how it will play out decades from now. In the meantime, you are contributing to it with the goal of providing an income stream when you retire. A Google search told me CT teachers contributed 6% of their salaries last year, and that may have risen to 7% this year. What's the percentage of the employer contribution that couples with that?

Our contribution rates in the state where we live are going up on July 1st where educators will now pay 6.29% of their salaries into our state pension fund for the employee contribution (employer contribution goes up as well and they will pay 9.44%) for a total contribution rate of 15.73% (up from 14.88% that ends on the last day of June). The state pension also lowered the annual return target to a more reasonable expectation.

Striking a good balance of not over-saving for retirement to the detriment of your current expenses/needs/variables by the mandatory pension contribution you pay, plus any 403b and Roth IRA contributions will be what you have to do. Most financial planners would say to be in the 10-20% range for retirement savings. BH's would probably encourage 20-25%+ if you can. If you already have $6860 coming out of your $98K salary going to the mandatory pension contribution, it leaves you with some room depending on your household expenses/needs and taxes. At the very least, if you could contribute $7840 ($654 per month) to the 403B, that would mean 15% of your own gross income is going to retirement (pension + 403b). Obviously, if your spouse is working you can take advantage of contributing more to the 403b and Roth IRA's as long as you leave yourself enough to pay all of your expenses and live within your means.

Personally, I wouldn't complain about a cost of living pay increase each year in education/academia. Especially if you have been following the plight of teacher salaries in other states with the various strikes going on where they have not been getting such increases.
wolverinesman wrote:
Sat May 19, 2018 4:54 pm
I am not sure if the 403(b) options are annuities or anything like that (I'm not even sure how to check on that). The providers I can choose from are:
Voya Retirement Insurance and Annuity Company
AXA
Great American
Oppenheimer
Mass Mutual
MetLife
Security Benefit
Fidelity
Vanguard
Good chance Vanguard and Fidelity will stand out, but review the annual fees of all of them to compare. Even if you could get started with a small contribution from each paycheck (don't worry about maxing it out until household income is high enough), the power of time and compounding can work well for you.

In the meantime, figure out your current household budget and how much you would be able to afford to contribute beyond the amount you are already paying into the pension.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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CyclingDuo
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by CyclingDuo » Sat May 19, 2018 10:17 pm

wolverinesman wrote:
Sat May 19, 2018 9:08 pm
Thank you very much for that chart, I was trying to find it all on their websites, and that site you linked to is MUCH easier! If their prices are all so similar, is Fidelity at $36 less a year the better option? I heard they recently dropped their prices to match Vanguards, but can they jack them back up at any time? I'm sorry, because I am trying to learn as much as I can as quickly as I can, but there's a pretty steep learning curve.

I do feel MUCH better knowing I made the right decision to not go with AXA. It's too bad, because like I said almost every teacher at the two schools I've worked at use them. They come into the school and try to make it easy, but it sounds like that comes with a pretty big price. You are all so amazing to just hang out on these forums and help people!
403bwise.com is a great website as well which talks about all matters related to 403b and 457b plans.
"Everywhere is within walking distance if you have the time." ~ Steven Wright

krow36
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by krow36 » Sat May 19, 2018 10:57 pm

wolverinesman wrote:
Sat May 19, 2018 9:08 pm
Thank you very much for that chart, I was trying to find it all on their websites, and that site you linked to is MUCH easier! If their prices are all so similar, is Fidelity at $36 less a year the better option? I heard they recently dropped their prices to match Vanguards, but can they jack them back up at any time? I'm sorry, because I am trying to learn as much as I can as quickly as I can, but there's a pretty steep learning curve.
Vanguard is the pioneer in low-cost mutual fund investing and the first to offer retail index funds. In addition they have a mutual corporate structure that allows their funds to be owned by the funds' investors rather than by shareholders expecting a return on their shares of the financial company. Fidelity, Schwab and other financial companies, either privately or publicly owned, have reduced their ERs and fees to compete with Vanguard. I don't think these loss-leaders are likely to end unless Vanguard raises their fees, which I don't think is likely. :D

Many of us have been very satisfied Vanguard customers for decades. However I would have no hesitation in using the Fidelity 403b instead of the Vanguard (through Newport Group) 403b plan. The funds are equivalent and as low or lower cost. Fidelity is a well-run company. Be sure to use only their low-cost index funds. They have many actively managed, higher-cost funds. Neither Vanguard nor Fidelity send salespeople to the schools, so both 403b plans are internet based with phone help available.

Milo953
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by Milo953 » Sun May 20, 2018 3:53 pm

Can’t say enough bad things about AXA. They are vultures preying on our school teachers who work hard for their money and don’t deserve to be scammed. Thank goodness you have the knowledge to stay away. For other teachers out there who are not as fortunate to have Vangaurd or Fidelity, look into Security Benefit. They offer a program called Direct Invest that has Vangaurd funds.

wolverinesman
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by wolverinesman » Sun May 20, 2018 8:30 pm

Milo953 wrote:
Sun May 20, 2018 3:53 pm
Can’t say enough bad things about AXA. They are vultures preying on our school teachers who work hard for their money and don’t deserve to be scammed. Thank goodness you have the knowledge to stay away. For other teachers out there who are not as fortunate to have Vangaurd or Fidelity, look into Security Benefit. They offer a program called Direct Invest that has Vangaurd funds.
Do you happen to have a good one or two liner I can use when talking with teachers. When I told other teachers I was going to look into other options other than AXA everyone pretty much told me that our Rep assured them they have the lowest fees, and it's something like $30 per year and only 1% after that. I'd like to be able to share facts with people when it comes up in discussion. I know everyone I've seen on the Internet says how bad they are, but I'd like to be able to clearly articulate why AXA isn't the best choice.

PFInterest
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by PFInterest » Sun May 20, 2018 8:33 pm

wolverinesman wrote:
Sun May 20, 2018 8:30 pm
Milo953 wrote:
Sun May 20, 2018 3:53 pm
Can’t say enough bad things about AXA. They are vultures preying on our school teachers who work hard for their money and don’t deserve to be scammed. Thank goodness you have the knowledge to stay away. For other teachers out there who are not as fortunate to have Vangaurd or Fidelity, look into Security Benefit. They offer a program called Direct Invest that has Vangaurd funds.
Do you happen to have a good one or two liner I can use when talking with teachers. When I told other teachers I was going to look into other options other than AXA everyone pretty much told me that our Rep assured them they have the lowest fees, and it's something like $30 per year and only 1% after that. I'd like to be able to share facts with people when it comes up in discussion. I know everyone I've seen on the Internet says how bad they are, but I'd like to be able to clearly articulate why AXA isn't the best choice.
"You do you"

wolverinesman
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by wolverinesman » Sun May 20, 2018 8:44 pm

PFInterest wrote:
Sun May 20, 2018 8:33 pm
wolverinesman wrote:
Sun May 20, 2018 8:30 pm
Milo953 wrote:
Sun May 20, 2018 3:53 pm
Can’t say enough bad things about AXA. They are vultures preying on our school teachers who work hard for their money and don’t deserve to be scammed. Thank goodness you have the knowledge to stay away. For other teachers out there who are not as fortunate to have Vangaurd or Fidelity, look into Security Benefit. They offer a program called Direct Invest that has Vangaurd funds.
Do you happen to have a good one or two liner I can use when talking with teachers. When I told other teachers I was going to look into other options other than AXA everyone pretty much told me that our Rep assured them they have the lowest fees, and it's something like $30 per year and only 1% after that. I'd like to be able to share facts with people when it comes up in discussion. I know everyone I've seen on the Internet says how bad they are, but I'd like to be able to clearly articulate why AXA isn't the best choice.
"You do you"
Yeah that's pretty much where I'm at. When people asked me why I wasn't going wit AXA, I just said I'd rather look into all of my options. That's how I ended-up here!

Milo953
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by Milo953 » Mon May 21, 2018 1:10 pm

Try referring your colleagues to this article for a start https://www.nytimes.com/2016/10/27/your ... -fees.html

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celia
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by celia » Mon May 21, 2018 2:00 pm

wolverinesman wrote:
Sun May 20, 2018 8:30 pm
Milo953 wrote:
Sun May 20, 2018 3:53 pm
Can’t say enough bad things about AXA. They are vultures preying on our school teachers who work hard for their money and don’t deserve to be scammed. Thank goodness you have the knowledge to stay away. For other teachers out there who are not as fortunate to have Vangaurd or Fidelity, look into Security Benefit. They offer a program called Direct Invest that has Vangaurd funds.
Do you happen to have a good one or two liner I can use when talking with teachers. When I told other teachers I was going to look into other options other than AXA everyone pretty much told me that our Rep assured them they have the lowest fees, and it's something like $30 per year and only 1% after that. I'd like to be able to share facts with people when it comes up in discussion. I know everyone I've seen on the Internet says how bad they are, but I'd like to be able to clearly articulate why AXA isn't the best choice.
To answer your direct question, do your own research, then you can respond "my plan only charges $x in yearly fees and y% thereafter". Also look at all the fees the AXA group is subject to. There are a lot more than custodian fees. The funds themselves have fees.

Do most of your co-workers also use the same tax preparer? Do they marvel at all the money the tax preparer "saves" them? We saw this while teaching, and went to "their" tax preparer once. He was just a data entry guy. He didn't save one us anything. Not only that but his calculated tax liability was more than when I prepared the return, plus we had to pay him. Meanwhile, the other teachers couldn't understand that their taxes were grossly over-withheld from their paychecks. Most teachers we knew "followed the herd" and still don't realize they could have done better on their own.

krow36
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by krow36 » Mon May 21, 2018 4:17 pm

wolverinesman wrote:
Sun May 20, 2018 8:30 pm
Do you happen to have a good one or two liner I can use when talking with teachers. When I told other teachers I was going to look into other options other than AXA everyone pretty much told me that our Rep assured them they have the lowest fees, and it's something like $30 per year and only 1% after that. I'd like to be able to share facts with people when it comes up in discussion. I know everyone I've seen on the Internet says how bad they are, but I'd like to be able to clearly articulate why AXA isn't the best choice.
If your colleagues are unwilling to examine the AXA fees and look at the result after many years, there’s probably not much you can do for them. It will take more than a “two liner”. Because AXA makes it hard to know their fees, you can use 403bcompare.com to get an idea of the fees on their EQUI-VEST Series 201 variable annuity.

AXA 403b, https://www.403bcompare.com/products/15 ... entoptions
Mortality and Expense fee is 1.20%
5% surrender fee for 6 years
Expense ratios are between about 0.7% and 1.30%

I picked their two lowest fee funds, and assumed a 50/50 stock bond portfolio. I expect most of your colleagues have more expensive funds, with ERs probably averaging close to 1.00%.
EQ/Equity 500 Index, ER = 0.61%
EQ/Core Bond Index, ER = 0.71%
The portfolio would have a weighted ER of 0.66%.
With the M&E fee of 1.20%, the annual fee is 1.86%

Target 2035 Allocation, ER = 1.10%
With the M&E fee of 1.20%, the annual fee is 2.30%
—————————————————————————————————
Fidelity or Vanguard:
A 50/50 stock bond portfolio would have a weighted ER of 0.04% or 0.045%. Let’s use 0.05% for the weighted ER.

VG or Fidelity Target Retirement 20XX, ER = 0.15%
—————————————————————————————————
You can use a financial calculator to get an idea of the result of the difference the fees of AXA and Fido or VG: https://www.360financialliteracy.org/Ca ... ?fpath=197
Assumptions I made:
Salary: 75k
Percent of salary contributed: 25% (I assumed the 403b was maxed)
Current age: 35
Age at retirement: 65
Current 403b balance: 100k
Annual rate of return: 4%
Annual salary increase: 1%
Annual investment fee: 1.9% for AXA, 0.1% for Fido and VG (the lowest rate the calculator allows?)

RESULTS:
AXA: Total value is $1,040,753
Fido or VG: Total value is $1,451,376
Difference: $410,623
(the difference is even greater if the Target Retirement funds are used (2.30% vs 0.15%)
Total employee contributions: $633,075 in both cases

Instead of a "two liner", make a copy of this type of exercise and whip it out! :D

wolverinesman
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by wolverinesman » Mon May 21, 2018 8:07 pm

Thanks, that's very helpful so I can share it with people when they ask me. I just hate to see people being taken advantage of.

Now I just need to figure out if it's better in my situation for me to contribute to the 403(b) or the IRA. Seems like a lot of mixed opinions. But I feel really good about being able to choose between Fidelity and Vanguard!

krow36
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Location: WA

Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by krow36 » Mon May 21, 2018 11:16 pm

wolverinesman wrote:
Mon May 21, 2018 8:07 pm
Thanks, that's very helpful so I can share it with people when they ask me. I just hate to see people being taken advantage of.

Now I just need to figure out if it's better in my situation for me to contribute to the 403(b) or the IRA. Seems like a lot of mixed opinions. But I feel really good about being able to choose between Fidelity and Vanguard!
Ideally you should contribute to both an IRA and to the employer based 403b if possible. The IRA only allows a 5.5k /yr contribution (6.5k if >50) while the 403b allows a 18.5k/yr (24.5 if >50) contribution. Since you have no match (like almost all teachers), and can use either Fido or VG for both, it doesn’t make a lot of difference.

Even though your wife is not working, she can contribute to her IRA based on your income. Are you making use of this? I suggest you both contribute to an IRA, either traditional or Roth. The tIRA and the 403b contributions will reduce your current taxes. You should move your old IRA to either Fido or VG if it is not already there.

If you can afford to contribute to your 403b as well as the IRAs, that would be a very good idea. Because it comes out of your salary every pay period, without you having to deal with it, it’s a great way to save for retirement. :D

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ruralavalon
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by ruralavalon » Tue May 22, 2018 8:04 am

wolverinesman wrote:
Mon May 21, 2018 8:07 pm
Thanks, that's very helpful so I can share it with people when they ask me. I just hate to see people being taken advantage of.

Now I just need to figure out if it's better in my situation for me to contribute to the 403(b) or the IRA. Seems like a lot of mixed opinions. But I feel really good about being able to choose between Fidelity and Vanguard!
About how much (in dollars) do you feel that you might be able to contribute to investing annually (total, all accounts)?

Did you find out how what the expense ratio will be in your 403b on the Vanguard Target date fund you were interested in?

Did you find out what Fidelity Target date fund (index or not) and it's expense ratio will be in your 403b?

EDITED to add: "If the company plan offers good, low-cost funds, it may be preferable to contribute to the company plan before contributing to an IRA." Please see the wiki article "Prioritizing investments".
Last edited by ruralavalon on Tue May 22, 2018 9:14 am, edited 1 time in total.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

NoHeat
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by NoHeat » Tue May 22, 2018 8:42 am

wolverinesman wrote:
Sat May 19, 2018 8:08 am
I haven't paid into Social Security,
Just a little summer work each year would make you qualify. It takes 40 quarters of paying SS tax, for quarters with earnings above a hurdle of about $1300.

A teacher relative of mine did that, fortunately. In retirement he and his wife, also a teacher, worried about his state teacher’s pension, so he withdrew the funds, squandered the proceeds, and was left with nothing other than SS for the next 30 years of his life. Another relative, a firefighter municipal employee, did the same. These are horror stories that would be much more horrible if they hadn’t qualified for SS.

Austintatious
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by Austintatious » Tue May 22, 2018 9:09 am

OP,

for you to make an informed decision re those 403b options, you must have at least a reasonably good understanding of what they are. Perhaps I'm wrong but, at this point, it seems that you do not know enough about them. A good place to start would be the individual/office within your employing school district/agency having administrative responsibility for the various retirement savings plans made available to employees. They should have the ability to tell you what each of those options entails. If they can't provide you with the information about the nature and quality of each option necessary to making an informed decision, including all the costs associated with each, then they should be able to refer you to those who can. Dig into it.

krow36
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by krow36 » Tue May 22, 2018 10:20 am

NoHeat wrote:
Tue May 22, 2018 8:42 am
wolverinesman wrote:
Sat May 19, 2018 8:08 am
I haven't paid into Social Security,
Just a little summer work each year would make you qualify. It takes 40 quarters of paying SS tax, for quarters with earnings above a hurdle of about $1300.

A teacher relative of mine did that, fortunately. In retirement he and his wife, also a teacher, worried about his state teacher’s pension, so he withdrew the funds, squandered the proceeds, and was left with nothing other than SS for the next 30 years of his life. Another relative, a firefighter municipal employee, did the same. These are horror stories that would be much more horrible if they hadn’t qualified for SS.
When the OP says he doesn’t have social security, I assume he is teaching in one of the states where public employees do not covered by SS. Even if these teachers have other employment where they pay into SS, it is greatly reduced by the WEP law. :( http://www.nea.org/home/16819.htm

krow36
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by krow36 » Tue May 22, 2018 11:38 am

Austintatious wrote:
Tue May 22, 2018 9:09 am
OP,
for you to make an informed decision re those 403b options, you must have at least a reasonably good understanding of what they are. Perhaps I'm wrong but, at this point, it seems that you do not know enough about them. A good place to start would be the individual/office within your employing school district/agency having administrative responsibility for the various retirement savings plans made available to employees. They should have the ability to tell you what each of those options entails. If they can't provide you with the information about the nature and quality of each option necessary to making an informed decision, including all the costs associated with each, then they should be able to refer you to those who can. Dig into it.
Unfortunately, this is not correct. K-12 school districts use a non-ERISA 403b plan, which is very different than a 401k plan which is governed by ERISA. The district does not vet the various vendors that are allowed to sign up their employees. The HR office will not give cost information to employees. The vendors do not supply that information to the employer. The employees are left to fend for themselves.

In the vast majority of K-12 school districts, vendors offer a generic 403b plan. It is the same plan used throughout the US. This is the case with Vanguard and Fidelity.

CA by law requires all 403b vendors to disclose their fees and information on their offerings. This information is available on the 403bcompare.com website and is very useful in other states. The website is administered by CalSTRS, the state teachers retirement system. The information that Vanguard and Fidelity provide to 403bcompare.com is what I referred to in my previous post. Over the years, it has been shown to be accurate.

Ron Ronnerson
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by Ron Ronnerson » Tue May 22, 2018 2:20 pm

I’m a teacher in California. I would operate as if your pension will be reduced but not completely eliminated. Maybe expect to receive only half of it if the Connecticut system is really underfunded. Since you don’t pay into social security, I can’t imagine your pension would be entirely eliminated (even though anything is possible).

You should make use of low-cost investments available to you. For this year, I’d prioritize the Roth IRA since you’re likely in the 12% bracket. I took your salary of 98k and subtracted 6k for your pension contributions and 24k for the standard deduction and that brings your AGI to 68k. You could have other deductions as well that would bring this number down further (examples: medical and dental contributions taken from your check, educator expenses, flexible spending accounts). The 12% bracket goes up to $77,400. I would use the Roth IRA up until I got to that level and then contribute into the 403b or 457b after that. Personally, I would go with Vanguard but Fidelity is a good option too. Next year, when your spouse is working, I’d contribute into a 403b or 457b first. If you get down into the 12% bracket, I’d switch to the Roth at that point.

Also (and again personally) I wouldn’t make it my mission in life to save others in terms of their investment choices. If there is a recession, you may get blamed by coworkers for poor returns. They could become upset with you and say everything was going well until they started listening to you. It kills me a little bit inside when my colleagues say that their financial guy is really great, especially when I’ve learned what they are invested in. I keep quiet because no one asked my opinion or advice. It’s your choice, of course. Talking to a close friend at work is definitely different than trying to educate the entire staff at lunch time. I’d be very careful what I say and how I say it.

NoHeat
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Re: Need Help Deciding Between Non-Matching 403(b) and a Roth IRA

Post by NoHeat » Tue May 22, 2018 6:09 pm

krow36 wrote:
Tue May 22, 2018 10:20 am
When the OP says he doesn’t have social security, I assume he is teaching in one of the states where public employees do not covered by SS. Even if these teachers have other employment where they pay into SS, it is greatly reduced by the WEP law. :( http://www.nea.org/home/16819.htm
Oh, I was unaware of that rule. It looks like quite a profound penalty, for a teacher or municipal employee in those states that opted out of SS. So the suggestion in my post was in error — sorry about that.

My relative apparently avoided this rule by cashing out of the state teacher pension before drawing a benefit (and he thereafter made unfortunate choices to waste the proceeds).

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