403b vs Roth vs taxable account

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idealtrucks
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403b vs Roth vs taxable account

Post by idealtrucks » Wed Nov 07, 2018 12:03 pm

I'm trying to help my parents get their finances in line before retirement. My mother is wanting to retire within the next year maybe, and my dad is planning on working another 8-10 years.

Right now they each have a 403b with Mass Mutual through Edward Jones and their employer. Fees on this aren't great as I'm sure you know, but it is tax sheltered.
They also each have a Roth IRA with an annuity which I'm currently in the process of having moved to Vanguard and am planning on using the target retirement fund.

I'm pretty sure I should have them max out the Roth accounts. For the rest of what they can invest (around 20K a year), should it be put in the 403b, or would a standard taxable account be better with Vanguard? YTD on their 403b is about 6% I think.

Also, my mother has a 403B from Voya with an annuity returning 1.2%..haha. Since she is still employed, is it possible to move that 403b into something else? Voya told me they couldn't invest it in anything else.

Thanks for any help!

PFInterest
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Re: 403b vs Roth vs taxable account

Post by PFInterest » Wed Nov 07, 2018 2:05 pm

403b. then youre going to roll it over to an IRA in a few years anyways.

you dont say how much they have or tax brackets. so thats the generic advice.

idealtrucks
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Re: 403b vs Roth vs taxable account

Post by idealtrucks » Wed Nov 07, 2018 3:28 pm

There's about 30K combined in Roth, about 26K in the EJ 403B, and 8K in the Voya 403B
I'm not sure what tax bracket they would be in. They make around 120K a year income.

krow36
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Re: 403b vs Roth vs taxable account

Post by krow36 » Wed Nov 07, 2018 5:22 pm

idealtrucks wrote:
Wed Nov 07, 2018 12:03 pm
I'm trying to help my parents get their finances in line before retirement. My mother is wanting to retire within the next year maybe, and my dad is planning on working another 8-10 years.

Right now they each have a 403b with Mass Mutual through Edward Jones and their employer. Fees on this aren't great as I'm sure you know, but it is tax sheltered.
They also each have a Roth IRA with an annuity which I'm currently in the process of having moved to Vanguard and am planning on using the target retirement fund.

I'm pretty sure I should have them max out the Roth accounts. For the rest of what they can invest (around 20K a year), should it be put in the 403b, or would a standard taxable account be better with Vanguard? YTD on their 403b is about 6% I think.

Also, my mother has a 403B from Voya with an annuity returning 1.2%..haha. Since she is still employed, is it possible to move that 403b into something else? Voya told me they couldn't invest it in anything else.
Are either of your parents employed by a K-12 school district? If so, there may be other vendors on the district's 403b vendor list that can be used. If your mother is retiring in a year, it may be easiest to wait until after that and then roll the Voya annuity 403b and the EJ/Mass Mutual 403b into a traditional IRA at Vanguard or Fidelity. You need to find out what kind of Voya annuity (variable or fixed) she has, and what the annual fees and also the surrender fees are.

If your dad will work another 8-10 years, then it is certainly worth moving his 403b into a low-cost provider if possible, assuming his employer is a K-12 school district.

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FiveK
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Re: 403b vs Roth vs taxable account

Post by FiveK » Wed Nov 07, 2018 6:43 pm

idealtrucks wrote:
Wed Nov 07, 2018 12:03 pm
I'm pretty sure I should have them max out the Roth accounts. For the rest of what they can invest (around 20K a year), should it be put in the 403b, or would a standard taxable account be better with Vanguard?
If they have pensions that will replace a large fraction of their current income, Roth may be a good idea.

For most, however, traditional works better in the long run.

See Traditional versus Roth - Bogleheads and Investment Order for some general ideas to apply to their specific situation.

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grabiner
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Re: 403b vs Roth vs taxable account

Post by grabiner » Wed Nov 07, 2018 10:16 pm

idealtrucks wrote:
Wed Nov 07, 2018 12:03 pm
I'm trying to help my parents get their finances in line before retirement. My mother is wanting to retire within the next year maybe, and my dad is planning on working another 8-10 years.

Right now they each have a 403b with Mass Mutual through Edward Jones and their employer. Fees on this aren't great as I'm sure you know, but it is tax sheltered.
They should contribute to the 403(b)s in preference to a taxable account. Yes, they will pay high fees (unless you can find a low-cost option), but those fees will go away when they retire, as they can roll the 403(b)s into IRAs, keeping the tax deferral while getting rid of the higher costs.

And your mother's 403(b) should be maxed out first, since she will retire earlier.
Wiki David Grabiner

idealtrucks
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Re: 403b vs Roth vs taxable account

Post by idealtrucks » Thu Nov 08, 2018 8:29 am

Thank you for the advice everyone. They do work K-12 education, and the mass mutual seems to be about the best. Not a lot of really good choices...VOYA, AXA, Ameriprise..

krow36
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Re: 403b vs Roth vs taxable account

Post by krow36 » Thu Nov 08, 2018 11:16 am

Can you give us the complete list of 403b vendors as well as the list of 457 vendors? This is usually found on the district's Third Party Administrator website. Sometimes there's a low-cost option available that isn't obvious.

What state are they in? A number of states have state-run low-cost 457 plans that are available to K-12 employees.

JW-Retired
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Re: 403b vs Roth vs taxable account

Post by JW-Retired » Thu Nov 08, 2018 11:52 am

idealtrucks wrote:
Thu Nov 08, 2018 8:29 am
Thank you for the advice everyone. They do work K-12 education, and the mass mutual seems to be about the best. Not a lot of really good choices...VOYA, AXA, Ameriprise..
You can't tell if it's good by the name of the administrator, you need to actually find out the costs in this particular 403b. It all depends on the size of the assets your employer brings to the table plus their investing/negotiating smarts. VOYA costs might be terrible for a small or clueless employer, but my Megacorp 401k has used VOYA for something like 5 years and expenses have always been below those at admiral level in my Vanguard retail account.

As krow36 says show us a list. More times then not there are at least a couple of good choices there.
JW
Retired at Last

krow36
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Re: 403b vs Roth vs taxable account

Post by krow36 » Thu Nov 08, 2018 1:49 pm

JW-Retired wrote:
Thu Nov 08, 2018 11:52 am
You can't tell if it's good by the name of the administrator, you need to actually find out the costs in this particular 403b. It all depends on the size of the assets your employer brings to the table plus their investing/negotiating smarts. VOYA costs might be terrible for a small or clueless employer, but my Megacorp 401k has used VOYA for something like 5 years and expenses have always been below those at admiral level in my Vanguard retail account.
JW-Retired, a K-14 403b is in a different world than a megacorp 401k. The K-14 403b is a non-ERISA plan that is an arrangement between the vendor and the employee. The employer (the school district) does not vet the vendors or their offerings and has no fiduciary duty to do so. The employer allows a number of vendors to sell, on site, their products, most of which are annuity based and generic (sold throughout the US). Lower cost custodial accounts using mutual funds are mostly internet based but these vendors are often missing from the school districts' list of allowed vendors. Employees can work to get these few low-cost vendors added to the list, but that can take time, energy and financial savvy, which are often in short supply in the K-14 world.

VOYA and other large insurance companies serve as record keepers and administrators of megacorp 401k plans and of large state-wide 457 plans. The megacorps and the state government organizations are the fiduciaries responsible for plans.

idealtrucks
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Re: 403b vs Roth vs taxable account

Post by idealtrucks » Thu Nov 08, 2018 3:21 pm

This list they have (which is probably out of date) is:
Horace Mann Life Insurance Company
Variable Annuity Life Insurance Company
New York Life Insurance Company
ING ReliaStar Life Insurance Company
MetLIfe
Equitable Life Assurance Society of the United States
VA Retirement Specialists, INC
John Hancock Life Insurance Company
Franklin Templeton
Mass Mutual

The last two are through the local Edward Jones, most others are through local insurance offices

krow36
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Re: 403b vs Roth vs taxable account

Post by krow36 » Thu Nov 08, 2018 3:49 pm

idealtrucks wrote:
Thu Nov 08, 2018 3:21 pm
This list they have (which is probably out of date) is:
Horace Mann Life Insurance Company
Variable Annuity Life Insurance Company
New York Life Insurance Company
ING ReliaStar Life Insurance Company
MetLIfe
Equitable Life Assurance Society of the United States
VA Retirement Specialists, INC
John Hancock Life Insurance Company
Franklin Templeton
Mass Mutual

The last two are through the local Edward Jones, most others are through local insurance offices
That is not a promising list! If you know the school district, YOU can look up the up-to-date list. Try googling " (______)school district 403b plan" and see if you can find the vendor list. Try the same for the 457 list. What state are they in?

JW-Retired
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Re: 403b vs Roth vs taxable account

Post by JW-Retired » Thu Nov 08, 2018 3:55 pm

krow36 wrote:
Thu Nov 08, 2018 1:49 pm
JW-Retired wrote:
Thu Nov 08, 2018 11:52 am
You can't tell if it's good by the name of the administrator, you need to actually find out the costs in this particular 403b. ..............
JW-Retired, a K-14 403b is in a different world than a megacorp 401k. The K-14 403b is a non-ERISA plan that is an arrangement between the vendor and the employee. The employer (the school district) does not vet the vendors or their offerings and has no fiduciary duty to do so. The employer allows a number of vendors to sell, on site, their products, most of which are annuity based and generic (sold throughout the US). Lower cost custodial accounts using mutual funds are mostly internet based but these vendors are often missing from the school districts' list of allowed vendors. Employees can work to get these few low-cost vendors added to the list, but that can take time, energy and financial savvy, which are often in short supply in the K-14 world.

VOYA and other large insurance companies serve as record keepers and administrators of megacorp 401k plans and of large state-wide 457 plans. The megacorps and the state government organizations are the fiduciaries responsible for plans.
Krow36,
Are you saying that the costs of the 403b & 457 vendors don't vary from one employer to another? VOYA for example, charges all the same?
JW
Retired at Last

idealtrucks
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Re: 403b vs Roth vs taxable account

Post by idealtrucks » Thu Nov 08, 2018 4:16 pm

In VA, and that's the most recent list they have

krow36
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Re: 403b vs Roth vs taxable account

Post by krow36 » Thu Nov 08, 2018 4:36 pm

JW-Retired wrote:
Thu Nov 08, 2018 3:55 pm
Krow36,
Are you saying that the costs of the 403b & 457 vendors don't vary from one employer to another? VOYA for example, charges all the same?
JW
In most cases, yes. Check out the 403bcompare.com website. It's run by CalSTRS (the CA teachers pension authority). It details the costs of all of the 403b plans that are allowed in school districts in the state of CA. The vendors are required to keep their information updated. This site can be used in other states because those same plans, with the same fees, are offered in other states. The employer (the school district) pays absolutely no attention to the costs to the employee of the various VOYA offerings.

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