Funding 403(b) as Wife Starts Full-time Teaching Career

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jtnprogram
Posts: 10
Joined: Tue May 12, 2015 4:04 pm

Funding 403(b) as Wife Starts Full-time Teaching Career

Post by jtnprogram » Mon Aug 13, 2018 9:49 pm

Hello Bogleheads! I'm looking for some advice and thank you for any insights you might have.

Emergency funds: 6 months of Expenses Saved
Debt: Owe $123,000 on Mortgage. House is valued at $340,000. No other debt.
Tax Filing Status: Married Filing Jointly
Tax Rate: 24% Federal, 9% State
State of Residence:
His Age:39
Her Age:38
Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 30% of stocks

Current retirement assets

Taxable
15K cash (for investing)
30K Vanguard Total Market VTSMX

His 401k
$340K Fidelity Puritan FPURX
$340K Fidelity Asset Manager 85% FAMRX
Company match: ~6%

His Roth IRA at Vanguard
$42K Vanguard Wellington VGWLX

Her 403b
None yet.

Her Roth IRA at Vanguard
18K Vanguard Wellington VGWLX

Contributions
New annual Contributions
$~35K his 401k
$18K? her 403b
$5.5K his IRA/Roth IRA
$5.5K her IRA/Roth IRA
$~5K Taxable

Available funds

Funds available in his 401(k)
Open to Fidelity BrokerageLink

Funds available in her 403(b)
American Funds EuroPacific Growth R6 RERGX 0.50
Vanguard Total Intl Stock Index Institutional VTSNX 0.09
American Funds Capital World Growth and Income R6 RWIGX 0.45
Vanguard REIT Index Admiral VGSLX 0.12
ClearBridge Small Cap Growth IS LMOIX 0.79
Vanguard Small Cap Index Admiral VSMAX 0.06
DFA U.S. Targeted Value Portfolio I DFFVX 0.37
AB Discovery Growth Z CHCZX 0.69
Vanguard Mid Cap Index Inst VMCIX 0.05
Wells Fargo Special Mid Cap Value R6 WFPRX 0.75
American Funds AMCAP R6 RAFGX 0.36
Vanguard Institutional Index Inst VINIX 0.04
DFA U.S. Sustainability Core 1 Portfolio N/A DFSIX 0.25
JPMorgan US Research Enhanced Equity R6 JDEUX (0.25
Vanguard Equity Income Adm VEIRX 0.17
Vanguard Target Retirement 2060 Inv VTTSX 0.15
Vanguard Target Retirement 2055 Inv VFFVX 0.15
Vanguard Target Retirement 2050 Inv VFIFX 0.15
Vanguard Target Retirement 2045 Inv VTIVX 0.15
Vanguard Target Retirement 2040 Inv VFORX 0.15
Vanguard Target Retirement 2035 Inv VTTHX 0.14
Vanguard Target Retirement 2030 Inv VTHRX 0.14
Vanguard Target Retirement 2025 Inv VTTVX 0.14
Vanguard Target Retirement 2020 Inv VTWNX 0.13
Vanguard Target Retirement 2015 Inv VTXVX 0.13
Vanguard Target Retirement Income Inv VTINX 0.13
American Funds American Balanced R6 RLBGX 0.28
Invesco High Yield R6 HYIFX 0.58
PIMCO Total Return Instl PTTRX 0.46
Vanguard Total Bond Market Index Admiral VBTLX 0.05
DFA Inflation-Protected Securities Portfolio I DIPSX 0.12

Questions:
1. My wife has been a substitute teacher for years and is now going to be starting a full time job teaching (starting salary around $37K) since our kids are grown up. She’ll have access to the state of Iowa 403(b) program. I’m currently maxing out my 401k and both of our Roth IRAs. Our plan is to have her max out her 403(b). Is there any reason why we shouldn’t have her max out her 403(b)? Other than a much smaller paycheck, is there another downside I should be thinking of?

2. Assuming we fund her 403(b), what funds do you recommend? We are risk tolerant.

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BL
Posts: 8379
Joined: Sun Mar 01, 2009 2:28 pm

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by BL » Mon Aug 13, 2018 10:32 pm

You have some great funds available in the 403b, especially the Vanguard funds. Either a Target date fund of desired Bond %, or a few low-ER funds would work fine. You will want to look at the entire investments in all accounts as one portfolio.

You could get a Target Date INDEX fund at Fidelity, or a few total stock and bond funds.

It is probably good to make use of the retirement accounts if possible. At some time, when/if a pension is likely to amount to quite a bit, it might be worth checking on whether there is a Roth option is one of the retirement accounts.

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marbleous
Posts: 181
Joined: Mon Oct 22, 2007 8:37 pm

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by marbleous » Mon Aug 13, 2018 10:33 pm

I do not know about her school district or what might be available through the state, but often a 457 plan is also available beyond a 403b for public employees. These are usually poorly advertised as options as most teachers cannot max out their retirement accounts, but might be useful in potentially doubling her tax-advantaged space.

mega317
Posts: 2555
Joined: Tue Apr 19, 2016 10:55 am

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by mega317 » Mon Aug 13, 2018 10:42 pm

None that I can think of. You all seem to have enough money without her working, so the only way "smaller paycheck" seems to be a downside would be a psychological one for her. I could see someone being bummed about taking home less money after getting a raise because they have new access to a 403b.

Any of the funds available to her with expense ratios of 0.15% or lower could work. I don't see a reason to pick one of the more expensive ones.

I don't know anything about those Fidelity funds you hold but since they aren't the low cost broad market index funds with which I'm familiar, I am guessing there is potential for improvement there, too, if you're open to it.

gostars
Posts: 439
Joined: Mon Oct 09, 2017 7:53 pm

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by gostars » Tue Aug 14, 2018 12:09 am

I would probably look at doing more slicing and dicing and picking better funds. His 401k should probably be shifted to better funds, either ones that are part of the plan, or using BrokerageLink. Here's how I would split things up to meet that desired AA.

Total: $803.5k, desired numbers: $642.8k stocks, $450k US/$192.8k international; $160.7k bonds

Taxable ($45k)
$30k VTSAX
$15k VTIAX

His 401k ($680k)
$142.2k aggregate bond fund (FSITX/FXSTX/FXNAX/VBTLX in plan if available or FXNAX in BrokerageLink)
$177.8k total international fund (FTIPX/FTIUX/FTIHX in plan if available or FTIHX in BrokerageLink)
$360k total US market (FSTVX/FSKTX/FSKAX/VTSAX in plan if available or FSKAX in BrokerageLink)
(note: FSITX, FXSTX, FTIPX, FTIUX, FSTVX, and FSKTX will each merge into the equivalent institutional premium class fund in November)

His Roth ($42k)
$42k VTSAX

Her 403b ($18.5K)
$18.5k VBTLX

Her Roth ($18k)
$18k VTSAX


If the VTSAX in taxable doesn't have any capital gains associated with it the recent market slide, I would exchange it and go all VTIAX in taxable, then adjust his 401k allocations to compensate.

Nice simple allocation with only his 401k needed to have math involved to maintain the desired AA. Since it has the largest contributions, it should be possible to stay in balance just by adjusting the contribution percentages.

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

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by CyclingDuo » Tue Aug 14, 2018 4:30 am

jtnprogram wrote:
Mon Aug 13, 2018 9:49 pm

Funds available in her 403(b)
Best ones in that list are...

Vanguard Institutional Index Inst VINIX 0.04 (This is their S&P 500 fund.)

Use either the Small Cap fund alone or use both the Small Cap & Mid Cap funds in tandem with the Vanguard Institutional Index Fund to approximate the Total US Stock Market Fund (directions to do that are here - and I've typed them below as well:https://www.bogleheads.org/wiki/Approxi ... ock_market)

Vanguard Small Cap Index Admiral VSMAX 0.06
Vanguard Mid Cap Index Inst VMCIX 0.05
Vanguard Total Intl Stock Index Institutional VTSNX 0.09
Vanguard Total Bond Market Index Admiral VBTLX 0.05

Instructions to approximate the Total US Stock Market using the low cost Vanguard Funds in her 403b, you could do it these two easy ways for the percentage of the US Stock portion of her portfolio:

81% Vanguard 500 Index Fund (VFINX)
4% Vanguard Mid-Cap Index Fund (VIMSX)
15% Vanguard Small-Cap Index Fund (NAESX)


or

82% Vanguard 500 Index Fund (VFINX)
18% Vanguard Small-Cap Index Fund (NAESX)


The REIT fund is not a bad option if you want to add a bit more alternatives to your portfolio mix and instead of the Three Fund Portolio of Total US Stock Market, Total International, and Total Bond - it would be the lazy portfolio known as the Core Four (information found here: https://www.bogleheads.org/wiki/Lazy_portfolios).

Vanguard REIT Index Admiral VGSLX 0.12

Examples of the portfolio and percentages...

Image

Image


The highlighted funds that many of us think are the best would be known as the Three Fund Portfolio even though you have to use 2-3 funds to total the Vanguard Total Stock Market Fund via their Institutional S&P 500 Fund and the Small Cap/Mid Cap additions. We prefer to do it this way and use the lower cost ER fees of the individual funds over the choice of using the higher ER fee cost target funds. If her plan is with VALIC, they have a cool feature on their website that provides a button you can click on that automatically rebalances to your chosen allocation which makes the process as easy as logging on, and clicking that icon to take care of your semi-annual or annual rebalancing duties. It doesn't get much easier than that.

Your wife will first pay into the IPERS (mandatory pension contribution of 6.29% + the employer contribution of 9.44% will equal a total of 15.73% going into that each year). She will be vested after 7 years (if my memory is correct). https://www.ipers.org/about-us/contribution-rates

She has the excellent RIC plans available to choose between for both her voluntary 403b and a 457b:

Image

There are other plans available, but most are higher cost. There is also a brokerage window available through Schwab, but there is an administrative fee of I believe .5% per year on top of all of the commissions, ER fees, etc... . If that was chosen, then it opens up the possibility of all things available at Schwab including CD's, Bonds, etc... . Regardless, choosing things within her plans that couple well with your 401k plans to think of it all as a household retirement portfolio may be good. We use the VALIC plan through RIC (looks like that's the one you listed as well). There is an administrative wrap fee as shown in the graph above on top of the underlying ER fees, but it is not too bad considering what else is available out there in 403b land for teachers (as in horribly high expenses). Consider yourself fortunate thanks to the plans available to teachers in Iowa.

After her SS/Medi taxes, her mandatory 6.29% salary reduction for IPERS, you can use what is leftover as pre-tax or post-tax to fill up her 403b and part of her 457b or vice versa. Your choice if you want to contribute her entire remaining paycheck after the SS/Medi and mandatory 6.29% IPERS deduction to the 403b and 457b or just a portion of it.

Her 403b and 457b can be traditional or Roth - or a mix of both. Kudos to her for joining the full-time teaching force in Iowa, and all the best to her and both of your budding nest egg. :sharebeer
Last edited by CyclingDuo on Tue Aug 14, 2018 3:09 pm, edited 1 time in total.
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student
Posts: 2578
Joined: Fri Apr 03, 2015 6:58 am

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by student » Tue Aug 14, 2018 4:52 am

The 403(b) has good funds that can be used for roughly a 5-fund portfolio.
Vanguard Total Intl Stock Index Institutional VTSNX 0.09
Vanguard Small Cap Index Admiral VSMAX 0.06
Vanguard Mid Cap Index Inst VMCIX 0.05
Vanguard Institutional Index Inst VINIX 0.04
Vanguard Total Bond Market Index Admiral VBTLX 0.05

If you want to simplify, you can skip VSMAS and VMCIX and just use VINIX (S&P 500).

jtnprogram
Posts: 10
Joined: Tue May 12, 2015 4:04 pm

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by jtnprogram » Tue Aug 14, 2018 7:08 am

Thank you all so much for the thoughtful replies and taking the time to answer! :sharebeer

EdLaFave
Posts: 334
Joined: Fri Dec 26, 2014 2:31 am

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by EdLaFave » Tue Aug 14, 2018 1:27 pm

Think of your portfolio as the summation of all accounts.

Yes, use the 403b account.

Look into whether there is a 457b account available and use it if it is reasonable enough.

I'd either build a 3-fund portfolio using:

Vanguard Total Intl Stock Index Institutional VTSNX 0.09
Vanguard Institutional Index Inst VINIX 0.04
Vanguard Total Bond Market Index Admiral VBTLX 0.05

Or I'd select the all-in-one fund that is appropriate for your overall portfolio and risk:

Vanguard Target Retirement 2060 Inv VTTSX 0.15
Vanguard Target Retirement 2055 Inv VFFVX 0.15
Vanguard Target Retirement 2050 Inv VFIFX 0.15
Vanguard Target Retirement 2045 Inv VTIVX 0.15
Vanguard Target Retirement 2040 Inv VFORX 0.15
Vanguard Target Retirement 2035 Inv VTTHX 0.14
Vanguard Target Retirement 2030 Inv VTHRX 0.14
Vanguard Target Retirement 2025 Inv VTTVX 0.14
Vanguard Target Retirement 2020 Inv VTWNX 0.13
Vanguard Target Retirement 2015 Inv VTXVX 0.13
Vanguard Target Retirement Income Inv VTINX 0.13

jtnprogram
Posts: 10
Joined: Tue May 12, 2015 4:04 pm

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by jtnprogram » Sun Aug 26, 2018 3:27 pm

Another question has come up. My wife is trying to decide if she wants to join the teachers union. The only real reason she'd want to join is for liability protection, but it looks like there are other options like PEI (https://www.peiowa.org/) or AEA (http://www.iowaaea.org/). I"m not sure if there are other options such as going through my own insurer as well. Any thoughts would be very much appreciated.

A440
Posts: 230
Joined: Mon Sep 02, 2013 7:46 am
Location: NJ

Re: Funding 403(b) as Wife Starts Full-time Teaching Career

Post by A440 » Sun Aug 26, 2018 3:55 pm

Yes, she should join the union.

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