Teacher Looking To Stop 403b Contributions

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asklenny
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Teacher Looking To Stop 403b Contributions

Post by asklenny » Tue Jul 02, 2019 2:49 pm

My wife and I are both public school teachers.
* both 43 years old
* mortgage is paid off
* each make $90K per year
* each contribute $10K annually to our 403b accounts ($400k balance)
* each max out our Roth IRAs ($275K balance)
* invest $2000 per month into our TD Ameritrade brokerage acct ($350k balance)
* save approx. $2000 per month for savings, travel, fun (maintain a $20-25k savings acct)

I would like your thoughts on 403b accounts. As teachers we can both look forward to decent pensions when we retire. We currently prioritize saving diligently in all of our investment accounts. Our 403b accounts (mostly invested in Vanguard index funds and international funds) have been underperforming the past few years. Do we even need to invest in this type of a retirement account? What are the benefits.....if any? One of my friends who is a financial advisor questioned why any teacher would contribute to a 403b (unless they had so much money they didn't know what to do with it).

Would anyone recommend just directing those additional contributions into our regular brokerage account for the future instead of continuing to contribute to the 403b's? If I just let the 403b accounts ride it out with the current total......it should conservatively reach the million mark by age 65 with no further contributions. My other investment accounts are doing very well and I would love to throw more money into them (if possible).

buhlaxtus
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Re: Teacher Looking To Stop 403b Contributions

Post by buhlaxtus » Tue Jul 02, 2019 2:59 pm

(1) Do you get a match in the 403b? If so, make sure you keep getting it.

(2) The use of a 403b is the tax advantage. Why don't you want that?

(3) It sounds like you are chasing performance. You should make allocation decisions based on a plan, not based on what different parts of your portfolio do from year to year. The question of whether to use the 403b is unrelated to how it has been performing relative to other things.

fposte
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Re: Teacher Looking To Stop 403b Contributions

Post by fposte » Tue Jul 02, 2019 3:01 pm

What funds are available in your 403b account and what are their expense ratios? Are there other costs to your 403b?

Oh, and how well funded is your pension system? And does your state tax retirement income?

Edit: I missed that the OP says Vanguard funds but I'd still like to know if the provider is slapping fees onto Vanguard ERs.
Last edited by fposte on Tue Jul 02, 2019 3:31 pm, edited 1 time in total.

surfstar
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Re: Teacher Looking To Stop 403b Contributions

Post by surfstar » Tue Jul 02, 2019 3:03 pm

What kind of financial advisor tells you to pay more in taxes (brokerage vs 403b)?
Last edited by surfstar on Wed Jul 03, 2019 9:35 am, edited 1 time in total.

anonenigma
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Re: Teacher Looking To Stop 403b Contributions

Post by anonenigma » Tue Jul 02, 2019 3:09 pm

Your tax bracket (22% currently) would be the same if you retired today with a full-career pension.

I've always felt that delaying taxes has value because down the road one is likely paying taxes with dollars that don't buy as many goods and services as when the money was earned. Inflation over time.

Since you presumably don't have an employer match, the answer hinges on investment cost. I have a 403(b) with TIAA that doesn't have a plan-level charge. The best 403(b) in California, the CalSTRS Pension 2, has a plan-level charge of around 0.25%, which is quite good as these plans go. If you only have access to terrible options (annuities, Oppenheimer), which is common, then you should consider post-tax investing, starting with Roth IRAs if you qualify. I don't know much about T.D. Ameritrade, but I don't think of them as a low-cost provider like Vanguard or Fidelity.

Be careful of your financial advisor friend, who may look at you as an income opportunity.

livesoft
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Re: Teacher Looking To Stop 403b Contributions

Post by livesoft » Tue Jul 02, 2019 3:15 pm

Of course the financial advisor doesn't want people to put money in an account where they cannot get a fee to manage it.

I'd be maxing both 403(b)s myself and I would retire early before pensions started.
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delamer
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Re: Teacher Looking To Stop 403b Contributions

Post by delamer » Tue Jul 02, 2019 3:23 pm

If the 403(b) is underperforming when you have Vanguard index funds as investment options, then the underperformance is likely a reflection of your asset allocation.

What are your investments in the 403(b)? And what are they underperforming relative to?

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JMacDonald
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Re: Teacher Looking To Stop 403b Contributions

Post by JMacDonald » Tue Jul 02, 2019 3:26 pm

asklenny wrote:
Tue Jul 02, 2019 2:49 pm
One of my friends who is a financial advisor
Do yourself a favor and continue reading on this website before you take the advise of a "financial advisor."
Best Wishes, | Joe

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MNGopher
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Re: Teacher Looking To Stop 403b Contributions

Post by MNGopher » Tue Jul 02, 2019 3:37 pm

You say you have mostly Vanguard funds in your 403b. If they are through Vanguard directly and you are paying low expense ratios in the .05 -.20 range then it is worth continuing to contribute to the plan. But, if you have an annuity product through an insurance company you are probably paying at least 1% (100 bp) more than if you bought the funds directly from Vanguard, and it may not be worth it. When I exchanged my 403b plan from VALIC over to Vanguard my expense ratios dropped from around 1.80% to 0.09%.

Remember, 403b taxes are deferred so unless your pensions, social security, and taxable investment income will put you in a higher tax bracket than you are now, it is probably worth continuing to contribute to the 403b until you have a million or so. Many teachers will have several years, or a decade even, when their taxable income will be lower (between retiring and starting Social Security), and they can spend down their 403b money at a lower tax rate or maybe do conversions to Roth.

Check out this site for more info https://403bwise.com/

fposte
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Re: Teacher Looking To Stop 403b Contributions

Post by fposte » Tue Jul 02, 2019 3:47 pm

MNGopher wrote:
Tue Jul 02, 2019 3:37 pm
Many teachers will have several years, or a decade even, when their taxable income will be lower (between retiring and starting Social Security), and they can spend down their 403b money at a lower tax rate or maybe do conversions to Roth.

Check out this site for more info https://403bwise.com/
Though if they're in a pension system, that'll kick in when they retire, so the valley of conversion opportunity pre-social security doesn't figure as strongly. That's especially true if they're not eligible for Social Security. (I still think it's worth contributing to the 403b unless it's really horrible, but it's not as neat a choice.)

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MNGopher
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Re: Teacher Looking To Stop 403b Contributions

Post by MNGopher » Tue Jul 02, 2019 3:51 pm

fposte wrote:
Tue Jul 02, 2019 3:47 pm
MNGopher wrote:
Tue Jul 02, 2019 3:37 pm
Many teachers will have several years, or a decade even, when their taxable income will be lower (between retiring and starting Social Security), and they can spend down their 403b money at a lower tax rate or maybe do conversions to Roth.

Check out this site for more info https://403bwise.com/
Though if they're in a pension system, that'll kick in when they retire, so the valley of conversion opportunity pre-social security doesn't figure as strongly. That's especially true if they're not eligible for Social Security. (I still think it's worth contributing to the 403b unless it's really horrible, but it's not as neat a choice.)
Yes, the amount of the anticipated pension is a huge part of the equation. In my situation my pension is about 55% of my pre-retirement gross income, so it pays to defer a lot.

fposte
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Re: Teacher Looking To Stop 403b Contributions

Post by fposte » Tue Jul 02, 2019 3:59 pm

MNGopher wrote:
Tue Jul 02, 2019 3:51 pm
fposte wrote:
Tue Jul 02, 2019 3:47 pm
MNGopher wrote:
Tue Jul 02, 2019 3:37 pm
Many teachers will have several years, or a decade even, when their taxable income will be lower (between retiring and starting Social Security), and they can spend down their 403b money at a lower tax rate or maybe do conversions to Roth.

Check out this site for more info https://403bwise.com/
Though if they're in a pension system, that'll kick in when they retire, so the valley of conversion opportunity pre-social security doesn't figure as strongly. That's especially true if they're not eligible for Social Security. (I still think it's worth contributing to the 403b unless it's really horrible, but it's not as neat a choice.)
Yes, the amount of the anticipated pension is a huge part of the equation. In my situation my pension is about 55% of my pre-retirement gross income, so it pays to defer a lot.
Yes, it'll be similar for me, and I also benefit from an absence of state taxes on retirement income. (Though that situation that may not last, hence my doing some early in-plan Roth rollovers.)

02nz
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Re: Teacher Looking To Stop 403b Contributions

Post by 02nz » Tue Jul 02, 2019 4:11 pm

Welcome to the forum.
asklenny wrote:
Tue Jul 02, 2019 2:49 pm
Our 403b accounts (mostly invested in Vanguard index funds and international funds) have been underperforming the past few years.
Underperforming relative to what? If you're invested in index funds, by definition you're getting the performance of the indices, in the weighting in which you're invested, minus costs, which are very low. Over the long term you are very unlikely to come out ahead by going with a financial advisor, esp. after costs.

Your 403b plan likely offers a Roth option. It may make sense to put part or all of your contribution toward the Roth 403b if your pension income will already put you in a similar tax bracket as you're now. If you max the Roth 403b (19K/person), it's also effectively a higher contribution than the same amount to a traditional 403b, as it's after-tax money.

If you have a low-cost plan (it sounds like you do, given the availability of Vanguard funds), count yourself lucky, as many teachers have much, much worse plans. You should take full advantage of it (and a 457b plan, if available), whether tax-deferred or Roth or a mix of the two, before you put a cent into a regular taxable account.
Last edited by 02nz on Tue Jul 02, 2019 4:17 pm, edited 1 time in total.

retire2022
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Re: Teacher Looking To Stop 403b Contributions

Post by retire2022 » Tue Jul 02, 2019 4:15 pm

OP does your district include a 457b plan? if it does look at the investment choices, your 403 plan may have annuities, if you have a pension depending on the state/city it seems to me like another pension, annuities are insurance product with high fees.

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asklenny
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Re: Teacher Looking To Stop 403b Contributions

Post by asklenny » Tue Jul 02, 2019 7:51 pm

delamer wrote:
Tue Jul 02, 2019 3:23 pm
If the 403(b) is underperforming when you have Vanguard index funds as investment options, then the underperformance is likely a reflection of your asset allocation.

What are your investments in the 403(b)? And what are they underperforming relative to?
My 403b Investments
Vanguard Mid Cap Growth (VMGMX) 0.07%
Vanguard Wellesley (VWIAX) 0.16%
Vanguard Energy Fund (VENAX) 0.10%
Vanguard International Explorer (VINEX) 0.39%
T.Rowe Price Capital Appreciation (PACLX) 1.00%
Mutual European Fund (TEMIX) 1.29%
Yacktman Fund (YACKX)
0.75%

Her 403b Investments
Vanguard Large Cap (VLCAX) 0.05%
Vanguard Small Cap (VSGAX) 0.07%
Vanguard Wellington (VWENX) 0.17%
Oppenheimer Developing Mkt (ODMAX) 1.26%
Dodge & Cox International (DODFX)
0.63%

Too many international/foreign funds?? My funds are definitely lagging compared to my wife's investments. My financial advisor preaches up and down the choir about investing outside the US. It just seems those investments never seem to materialize and make me any money!!!

I think I have good options when selecting funds in the 403b accounts. I have tried to gravitate to as many Vanguard funds as possible. The other funds were recommended (he insisted) by my advisor. Not sure who benefits more....him or me???

Any recommendations on how to "adjust" what I currently have???? Or do you think I should stick with what I have ?? Looking to make changes (if necessary) before school starts again in the fall.
Last edited by asklenny on Wed Jul 03, 2019 8:44 am, edited 1 time in total.

02nz
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Re: Teacher Looking To Stop 403b Contributions

Post by 02nz » Tue Jul 02, 2019 8:08 pm

asklenny wrote:
Tue Jul 02, 2019 7:51 pm
delamer wrote:
Tue Jul 02, 2019 3:23 pm
If the 403(b) is underperforming when you have Vanguard index funds as investment options, then the underperformance is likely a reflection of your asset allocation.

What are your investments in the 403(b)? And what are they underperforming relative to?
My 403b Investments
Vanguard Mid Cap Growth (VMGMX)
Vanguard Wellesley (VWIAX)
Vanguard Energy Fund (VENAX)
Vanguard International Explorer (VINEX)
T.Rowe Price Capital Appreciation (PACLX)
Mutual European Fund (TEMIX)
Yacktman Fund (YACKX)


Her 403b Investments
Vanguard Large Cap (VLCAX)
Vanguard Small Cap (VSGAX)
Vanguard Wellington (VWENX)
Oppenheimer Developing Mkt (ODMAX)
Dodge & Cox International (DODFX)


Too many international/foreign funds?? My funds are definitely lagging compared to my wife's investments. My financial advisor preaches up and down the choir about investing outside the US. It just seems those investments never seem to materialize and make me any money!!!

I think I have good options when selecting funds in the 403b accounts. I have tried to gravitate to as many Vanguard funds as possible. The other funds were recommended (he insisted) by my advisor. Not sure who benefits more....him or me???

Any recommendations on how to "adjust" what I currently have???? Or do you think I should stick with what I have ?? Looking to make changes (if necessary) before school starts again in the fall.
You didn't give percentages, but based on that list my guess is that her investments have a higher proportion in low-cost index funds. Of your investments, only the first fund (VMGMX) meets that definition. Low-cost index investing doesn't always perform better, but in the long run you have a better shot at it, because you capture the market's gains at minimal cost.

So maybe it's time to do more of what is working, and switch to an all-index portfolio that's also better-diversified, instead of the current rather haphazard approach (e.g., Why are you concentrated in Europe?). https://www.bogleheads.org/wiki/Three-fund_portfolio. Within a 403b you can switch out of your existing investments with no tax implications.

International/domestic is a perennial topic of debate here, with no right or wrong answers. Anything between 0 and market weight (about 42% international) is fine. If you can't decide, split the difference at 20% and move on. (These percentages are of your stock allocation, not of your overall portfolio.)

I'd also reiterate that you should take advantage of all tax-advantaged space if possible (see posts about 457b).

Also, it would help if you could list all available investments for your 403b/457b plans, incl. expense ratios. People can then help you construct a three-fund portfolio based on that - if that's where you want to go.

delamer
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Re: Teacher Looking To Stop 403b Contributions

Post by delamer » Tue Jul 02, 2019 8:35 pm

asklenny wrote:
Tue Jul 02, 2019 7:51 pm
delamer wrote:
Tue Jul 02, 2019 3:23 pm
If the 403(b) is underperforming when you have Vanguard index funds as investment options, then the underperformance is likely a reflection of your asset allocation.

What are your investments in the 403(b)? And what are they underperforming relative to?
My 403b Investments
Vanguard Mid Cap Growth (VMGMX)
Vanguard Wellesley (VWIAX)
Vanguard Energy Fund (VENAX)
Vanguard International Explorer (VINEX)
T.Rowe Price Capital Appreciation (PACLX)
Mutual European Fund (TEMIX)
Yacktman Fund (YACKX)


Her 403b Investments
Vanguard Large Cap (VLCAX)
Vanguard Small Cap (VSGAX)
Vanguard Wellington (VWENX)
Oppenheimer Developing Mkt (ODMAX)
Dodge & Cox International (DODFX)


Too many international/foreign funds?? My funds are definitely lagging compared to my wife's investments. My financial advisor preaches up and down the choir about investing outside the US. It just seems those investments never seem to materialize and make me any money!!!

I think I have good options when selecting funds in the 403b accounts. I have tried to gravitate to as many Vanguard funds as possible. The other funds were recommended (he insisted) by my advisor. Not sure who benefits more....him or me???

Any recommendations on how to "adjust" what I currently have???? Or do you think I should stick with what I have ?? Looking to make changes (if necessary) before school starts again in the fall.
Who is the advisor affiliated with and how much are you paying him?

We Bogleheads are do-it-yourself types. As mentioned above, you can get input on creating a 3 fund portfolio here and save the cost of an advisor. Your current portfolio looks unnecessarily complicated (which is what you tend to get with advisors). Here’s info from the wiki: https://www.bogleheads.org/wiki/Lazy_portfolios

One thing to keep in mind is that you should be picking an allocation that you implement across all of your retirement accounts. Say you and your wife want 50% US stocks, 10% international stocks, and 40% bonds/cash. Then you should pick the best fund(s) in each account that gets you that overall allocation, and not attempt to have that breakdown in each of your accounts. So, for example, if you have a great international fund available in your Roth then put your whole international allocation of 10% into the Roth.

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scorcher31
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Re: Teacher Looking To Stop 403b Contributions

Post by scorcher31 » Tue Jul 02, 2019 9:20 pm

I'm going to be honest where I grew up 90K was principal salary, to me that is a fantastic teacher salary. So first off you guys seem like you are doing great! You have over a million in invested assets at 43 and will get a pension and social security. You are saving more than 25% of your gross income and that's not counting the 2k a month extra you save/spend on fun. My guess is between your pension as long as it's >50% and social security you will equal or surpass your current salary taking into account you won't need to save 25% for retirement when your retired. If you have debt now (loans/mortgage) that you can get rid of by retirement that would leave you in even better shape. This isn't even counting any of your investments. You already at looking at at least 40k a year from your million in current investments in retirement money even if you don't put in another dollar, and very likely it will grow on it's own.

My point is you guys are doing just fine (assuming you don't have huge debts). Your wife has a couple good options in her 403b. Your's aren't the best but not the end of the world. I would personally stay away from any financial advisers as they may end up significantly increasing your fees/costs. If it's not broke, don't fix it. I strongly suspect if you keep doing exactly what you guys are doing and retire at 65 you will be very wealthy.

VINNY
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Re: Teacher Looking To Stop 403b Contributions

Post by VINNY » Tue Jul 02, 2019 9:36 pm

Take a look at an article just written by Keith at the Wealthy Accountant. He has an interesting observation on retirement accounts like the ones you mentioned.

We are in a very similar situation. My wife is a teacher and I'm a police officer with similar income as you and we have very large 403b's and 457's. We've been maxing them out since 1997 and starting next year, she'll contribute to a Roth 457 and Roth 403b. I'll divert my 457 money into our taxable VTSAX.

We will have large pensions which will put us very close to what we are earning, plus when RMD's kick in from these accounts, which will probably continue to grow, we will have a significant tax problem.

Keith from The Wealthy Accountant has an interesting observation, it's worth reading.

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FiveK
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Re: Teacher Looking To Stop 403b Contributions

Post by FiveK » Tue Jul 02, 2019 9:38 pm

02nz wrote:
Tue Jul 02, 2019 4:11 pm
Your 403b plan likely offers a Roth option. It may make sense to put part or all of your contribution toward the Roth 403b if your pension income will already put you in a similar tax bracket as you're now. If you max the Roth 403b (19K/person), it's also effectively a higher contribution than the same amount to a traditional 403b, as it's after-tax money.
+1

asklenny, I just wanted to highlight the above.

The whole traditional vs. Roth thing hinges on your tax rate now vs. what it will be when you withdraw. Have you estimated your marginal tax rate in retirement?

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scorcher31
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Re: Teacher Looking To Stop 403b Contributions

Post by scorcher31 » Tue Jul 02, 2019 10:20 pm

There is nothing wrong with stopping putting money in you 403b as the investments aren't quite as good and putting new money in a taxable, especially if the overall fees are less or comparable. Just make sure you aren't losing out on any employer match. This would help you to decrease RMD but high taxes in retirement aren't a horrible problem to have.

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asklenny
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Re: Teacher Looking To Stop 403b Contributions

Post by asklenny » Wed Jul 03, 2019 6:08 am

scorcher31 wrote:
Tue Jul 02, 2019 10:20 pm
There is nothing wrong with stopping putting money in you 403b as the investments aren't quite as good and putting new money in a taxable, especially if the overall fees are less or comparable. Just make sure you aren't losing out on any employer match. This would help you to decrease RMD but high taxes in retirement aren't a horrible problem to have.
Yes! This is basically my current dilemma. We have no employer match in those 403b accounts. My school district only offers us 4 different financial companies to work through to open the 403b accounts. Thus, we must choose wisely and pick the one with the most investment options and lowest fees. Unfortunately, I find pros and cons to this. Yes, I am contributing to a tax-advantaged retirement account. But I am stuck contributing to a 403b that charges 1% annual advisor fees on top of the fund fees.

I understand Bogleheads are do-it-yourselfers when it comes to investing. I am currently a DIY investor through my brokerage account at TD Ameritrade. I'm investing in cheap ETFs and stocks......which are all performing very well. This may be a stupid question but if I am being hit with 1% annual fee on my 403b accounts (1% of 400K is quite a bit) then why wouldn't it be cheaper and more beneficial to direct future contributions to my brokerage account which would only result in 15% capital gains taxes on any future sale? Also, at my current income tax rate, 22% is probably as low as it will ever be. When I retire taxes will surely be higher with all the free-THIS and free-THAT that the government proposes. What is the tax advantage of saving through a 403b now at 22% when I'll be paying more in taxes (30%?) when I start pulling money out of those 403b accounts?

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ruralavalon
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Re: Teacher Looking To Stop 403b Contributions

Post by ruralavalon » Wed Jul 03, 2019 7:37 am

Welcome to the forum :) .

You are doing a good job at saving and contributing to tax-advantaged accounts.

asklenny wrote:
Tue Jul 02, 2019 2:49 pm
My wife and I are both public school teachers.
* both 43 years old
* mortgage is paid off
* each make $90K per year
* each contribute $10K annually to our 403b accounts ($400k balance)
* each max out our Roth IRAs ($275K balance)
* invest $2000 per month into our TD Ameritrade brokerage acct ($350k balance)
* save approx. $2000 per month for savings, travel, fun (maintain a $20-25k savings acct)

I would like your thoughts on 403b accounts. As teachers we can both look forward to decent pensions when we retire.
Does your 403b plan permit Roth contributions? Are you also eligible for Social Security?

If so you should probably switch to Roth contributions. For most people traditional 403b contributions will likely be better. A pension changes the analysis, so that Roth contributions are likely better if you have a significant pension coming in addition to Social Security. 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.

Does your 403b plan permit in-plan Roth conversion?

Does your employer also offer a 457b plan? If so what funds are offered in that plan? Please give fund names, tickers and expense ratios. Please see this for information needed and format: "Asking Portfolio Questions".

Does the 457b plan permit Roth contributions?

About when do you expect that you might want to retire?

asklenny wrote:
Tue Jul 02, 2019 7:51 pm
delamer wrote:
Tue Jul 02, 2019 3:23 pm
If the 403(b) is underperforming when you have Vanguard index funds as investment options, then the underperformance is likely a reflection of your asset allocation.

What are your investments in the 403(b)? And what are they underperforming relative to?
My 403b Investments
Vanguard Mid Cap Growth (VMGMX)
Vanguard Wellesley (VWIAX)
Vanguard Energy Fund (VENAX)
Vanguard International Explorer (VINEX)
T.Rowe Price Capital Appreciation (PACLX)
Mutual European Fund (TEMIX)
Yacktman Fund (YACKX)


Her 403b Investments
Vanguard Large Cap (VLCAX)
Vanguard Small Cap (VSGAX)
Vanguard Wellington (VWENX)
Oppenheimer Developing Mkt (ODMAX)
Dodge & Cox International (DODFX)


Too many international/foreign funds?? My funds are definitely lagging compared to my wife's investments. My financial advisor preaches up and down the choir about investing outside the US. It just seems those investments never seem to materialize and make me any money!!!

I think I have good options when selecting funds in the 403b accounts. I have tried to gravitate to as many Vanguard funds as possible. The other funds were recommended (he insisted) by my advisor. Not sure who benefits more....him or me???

Any recommendations on how to "adjust" what I currently have???? Or do you think I should stick with what I have ?? Looking to make changes (if necessary) before school starts again in the fall.
International stocks have not done well recently, so that may explain the performance you see.
asklenny wrote:
Wed Jul 03, 2019 6:08 am
But I am stuck contributing to a 403b that charges 1% annual advisor fees on top of the fund fees.
If the plan charges high fees in addition to expense ratios, that could also explain the performance.

Low expenses are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.

Could you also please list the funds offered in the 403b plan giving fund names, tickers and expense ratios as charged in the plan? (Often expense ratios charged in a work-based plan are different than the expense ratios charged the general npublic.) Please see this for information needed and format: "Asking Portfolio Questions". You can 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.

Also what investments are in your other accounts?

With additional information, we could then give ideas on different funds to use.
Last edited by ruralavalon on Wed Jul 03, 2019 8:23 am, edited 3 times in total.
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retiredjg
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Re: Teacher Looking To Stop 403b Contributions

Post by retiredjg » Wed Jul 03, 2019 8:03 am

My sense is that you do not need to continue to put $20k a year into tax-deferral. You definitely need some tax-deferred money in retirement, but I think you probably have enough (considering it should grow before retirement).

I think a huge tax-deferred account will come back to bite you later on unless you retire early which you did not mention. It is something you should probably think about.

I don't think we know if you will have SS or not, but getting SS will just make that problem (an upcoming "tax torpedo") worse.

With no match and 1% fees, I would be even less inclined to add a lot to the 403b accounts. I'm assuming you have already explored the other vendors well enough to know there is no better plan?

Many school districts can use a state sponsored 457b plan (often low cost) instead of their lousy 403b plans. Your district may not even know this or they may know it and not think to tell you. You might have to research this for yourself and encourage your district to become eligible. If available, I think a Roth 457 would be the perfect plan for you two to use.

One of my friends who is a financial advisor questioned why any teacher would contribute to a 403b...
Be cautious with this "advice". It could be completely genuine. On the other hand, your advisor may be hoping that you will put that money in a taxable account which s/he can manage for a fee. We have seen this before. :(

Topic Author
asklenny
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Re: Teacher Looking To Stop 403b Contributions

Post by asklenny » Wed Jul 03, 2019 8:35 am

retiredjg wrote:
Wed Jul 03, 2019 8:03 am
My sense is that you do not need to continue to put $20k a year into tax-deferral. You definitely need some tax-deferred money in retirement, but I think you probably have enough (considering it should grow before retirement).

I think a huge tax-deferred account will come back to bite you later on unless you retire early which you did not mention. It is something you should probably think about.

I don't think we know if you will have SS or not, but getting SS will just make that problem (an upcoming "tax torpedo") worse.

With no match and 1% fees, I would be even less inclined to add a lot to the 403b accounts. I'm assuming you have already explored the other vendors well enough to know there is no better plan?

Many school districts can use a state sponsored 457b plan (often low cost) instead of their lousy 403b plans. Your district may not even know this or they may know it and not think to tell you. You might have to research this for yourself and encourage your district to become eligible. If available, I think a Roth 457 would be the perfect plan for you two to use.

My school district does not allow us or offer us to invest in 457 plans (i already asked).
One of my friends who is a financial advisor questioned why any teacher would contribute to a 403b...
Be cautious with this "advice". It could be completely genuine. On the other hand, your advisor may be hoping that you will put that money in a taxable account which s/he can manage for a fee. We have seen this before. :(
My friend was just commenting on the fact that since we dont' get a match on any of our contributions it may not be worthwhile to throw money into a tax-advantaged retirement 403b with ongoing investment fees. I manage my own brokerage account so I am not paying advisor fees for those investments or accounts.

Topic Author
asklenny
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Re: Teacher Looking To Stop 403b Contributions

Post by asklenny » Wed Jul 03, 2019 8:40 am

ruralavalon wrote:
Wed Jul 03, 2019 7:37 am
Welcome to the forum :) .

You are doing a good job at saving and contributing to tax-advantaged accounts.

asklenny wrote:
Tue Jul 02, 2019 2:49 pm
My wife and I are both public school teachers.
* both 43 years old
* mortgage is paid off
* each make $90K per year
* each contribute $10K annually to our 403b accounts ($400k balance)
* each max out our Roth IRAs ($275K balance)
* invest $2000 per month into our TD Ameritrade brokerage acct ($350k balance)
* save approx. $2000 per month for savings, travel, fun (maintain a $20-25k savings acct)

I would like your thoughts on 403b accounts. As teachers we can both look forward to decent pensions when we retire.
Does your 403b plan permit Roth contributions? Are you also eligible for Social Security?

If so you should probably switch to Roth contributions. For most people traditional 403b contributions will likely be better. A pension changes the analysis, so that Roth contributions are likely better if you have a significant pension coming in addition to Social Security. 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.

Does your 403b plan permit in-plan Roth conversion?

Does your employer also offer a 457b plan? If so what funds are offered in that plan? Please give fund names, tickers and expense ratios. Please see this for information needed and format: "Asking Portfolio Questions".

Does the 457b plan permit Roth contributions?

About when do you expect that you might want to retire?

asklenny wrote:
Tue Jul 02, 2019 7:51 pm
delamer wrote:
Tue Jul 02, 2019 3:23 pm
If the 403(b) is underperforming when you have Vanguard index funds as investment options, then the underperformance is likely a reflection of your asset allocation.

What are your investments in the 403(b)? And what are they underperforming relative to?
My 403b Investments
Vanguard Mid Cap Growth (VMGMX) 0.07%
Vanguard Wellesley (VWIAX) 0.16%
Vanguard Energy Fund (VENAX) 0.10%
Vanguard International Explorer (VINEX) 0.39%
T.Rowe Price Capital Appreciation (PACLX) 1.00%
Mutual European Fund (TEMIX) 1.29%
Yacktman Fund (YACKX)
0.75%

Her 403b Investments
Vanguard Large Cap (VLCAX) 0.05%
Vanguard Small Cap (VSGAX) 0.07%
Vanguard Wellington (VWENX) 0.17%
Oppenheimer Developing Mkt (ODMAX) 1.26%
Dodge & Cox International (DODFX)
0.63%

Too many international/foreign funds?? My funds are definitely lagging compared to my wife's investments. My financial advisor preaches up and down the choir about investing outside the US. It just seems those investments never seem to materialize and make me any money!!!

I think I have good options when selecting funds in the 403b accounts. I have tried to gravitate to as many Vanguard funds as possible. The other funds were recommended (he insisted) by my advisor. Not sure who benefits more....him or me???

Any recommendations on how to "adjust" what I currently have???? Or do you think I should stick with what I have ?? Looking to make changes (if necessary) before school starts again in the fall.
International stocks have not done well recently, so that may explain the performance you see.
asklenny wrote:
Wed Jul 03, 2019 6:08 am
But I am stuck contributing to a 403b that charges 1% annual advisor fees on top of the fund fees.
If the plan charges high fees in addition to expense ratios, that could also explain the performance.

Low expenses are critical to long-term investing performance. Seemingly small annual fees have a large cumulative impact over time. Here is a calculator you could use to estimate the impact of investing expenses. Bankrate.com, "Mutual fund fees calculator".

Also, low expense ratios are the best predictor of future performance. Morningstar, 8/9/10 . “If there's anything in the whole world of mutual funds that you can take to the bank, it's that expense ratios help you make a better decision. In every single time period and data point tested, low-cost funds beat high-cost funds.” “Investors should make expense ratios a primary test in fund selection. They are still the most dependable predictor of performance.”

"The expense ratio is the most proven predictor of future fund returns." "There are many other things to consider, but investors should make expense ratios their first or second screen." Morningstar, 5/5/18.

Could you also please list the funds offered in the 403b plan giving fund names, tickers and expense ratios as charged in the plan? (Often expense ratios charged in a work-based plan are different than the expense ratios charged the general npublic.) Please see this for information needed and format: "Asking Portfolio Questions". You can 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.

Also what investments are in your other accounts?

With additional information, we could then give ideas on different funds to use.
I have certainly attempted to find low cost funds in the 403b accounts. My financial advisor argues that index funds cannot prepare and adjust for volatility like managed funds. Thus, he encourages us to invest in higher fee managed international funds vs. int'l index funds to help with this issue. Is he full of you know what? Or is this a logical argument on his part?

I will also go back and note the expense ratios on those investments.
Last edited by asklenny on Wed Jul 03, 2019 8:50 am, edited 2 times in total.

Topic Author
asklenny
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Re: Teacher Looking To Stop 403b Contributions

Post by asklenny » Wed Jul 03, 2019 8:46 am

My 403b Investments
Vanguard Mid Cap Growth (VMGMX) 0.07%
Vanguard Wellesley (VWIAX) 0.16%
Vanguard Energy Fund (VENAX) 0.10%
Vanguard International Explorer (VINEX) 0.39%
T.Rowe Price Capital Appreciation (PACLX) 1.00%
Mutual European Fund (TEMIX) 1.29%
Yacktman Fund (YACKX) 0.75%

Her 403b Investments
Vanguard Large Cap (VLCAX) 0.05%
Vanguard Small Cap (VSGAX) 0.07%
Vanguard Wellington (VWENX) 0.17%
Oppenheimer Developing Mkt (ODMAX) 1.26%
Dodge & Cox International (DODFX) 0.63%

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welderwannabe
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Re: Teacher Looking To Stop 403b Contributions

Post by welderwannabe » Wed Jul 03, 2019 8:48 am

asklenny wrote:
Wed Jul 03, 2019 6:08 am
why wouldn't it be cheaper and more beneficial to direct future contributions to my brokerage account which would only result in 15% capital gains taxes on any future sale? Also, at my current income tax rate, 22% is probably as low as it will ever be. When I retire taxes will surely be higher with all the free-THIS and free-THAT that the government proposes. What is the tax advantage of saving through a 403b now at 22% when I'll be paying more in taxes (30%?) when I start pulling money out of those 403b accounts?
You are making the dangerous assumption as to income taxes going up but long term capital gains taxes not. They may both stay put, one may change, or both. No one knows.

My general feeling is that taxes, all around, are more likely to increase than decrease which is why after the last spate of tax cuts I started doing more roth than tax deferred. However it is anyone's guess.

All you can really do is work with what you know for sure right now.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

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welderwannabe
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Re: Teacher Looking To Stop 403b Contributions

Post by welderwannabe » Wed Jul 03, 2019 8:50 am

asklenny wrote:
Wed Jul 03, 2019 8:35 am
My friend was just commenting on the fact that since we dont' get a match on any of our contributions it may not be worthwhile to throw money into a tax-advantaged retirement 403b with ongoing investment fees. I manage my own brokerage account so I am not paying advisor fees for those investments or accounts.
That is a valid point, but also keep in mind that there is an opportunity cost to not funding your 403b. 5 years from now you may switch jobs, careers, school districts or even move to a different state. You could then roll this 403b into the rollover IRA of your choosing...and then you will be really happy you contributed into this plan and have all that tax deferred space.
I am not an investment professional, but I did stay at a Holiday Inn Express last night.

retiredjg
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Re: Teacher Looking To Stop 403b Contributions

Post by retiredjg » Wed Jul 03, 2019 9:08 am

asklenny wrote:
Wed Jul 03, 2019 8:40 am
I have certainly attempted to find low cost funds in the 403b accounts. My financial advisor argues that index funds cannot prepare and adjust for volatility like managed funds. Thus, he encourages us to invest in higher fee managed international funds vs. int'l index funds to help with this issue. Is he full of you know what? Or is this a logical argument on his part?
This argument is contrary to what is generally believed here.

You refer to a friend who is an advisor and you refer to "my financial advisor". Are these the same people? Or is one of them tied to your 403b account?

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ruralavalon
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Re: Teacher Looking To Stop 403b Contributions

Post by ruralavalon » Wed Jul 03, 2019 9:14 am

asklenny wrote:
Wed Jul 03, 2019 8:40 am
I have certainly attempted to find low cost funds in the 403b accounts. My financial advisor argues that index funds cannot prepare and adjust for volatility like managed funds. Thus, he encourages us to invest in higher fee managed international funds vs. int'l index funds to help with this issue. Is he full of you know what? Or is this a logical argument on his part?

I will also go back and note the expense ratios on those investments.
In theory an actively managed fund could prepare and adjust for volatility, in practice they are not often successful at that. He omits mention that most actively managed funds have underperformed index funds in both up and down markets.

If it is necessary for some reason to use an actively managed fund, then use a low-cost fund.

asklenny wrote:
Wed Jul 03, 2019 8:46 am
My 403b Investments
Vanguard Mid Cap Growth (VMGMX) 0.07%
Vanguard Wellesley (VWIAX) 0.16%
Vanguard Energy Fund (VENAX) 0.10%
Vanguard International Explorer (VINEX) 0.39%
[color]T Rowe Price Capital Appreciation (PACLX) 1.00%
Mutual European Fund (TEMIX) 1.29%
Yacktman Fund (YACKX) 0.75%


Her 403b Investments
Vanguard Large Cap (VLCAX) 0.05%
Vanguard Small Cap (VSGAX) 0.07%
Vanguard Wellington (VWENX) 0.17%
Oppenheimer Developing Mkt (ODMAX) 1.26%
Dodge & Cox International (DODFX) 0.63%
I suggest dropping the high expense funds which I have lined thru. I don't know what funds to use instead, because I don't know the other funds offered in the 403b plan.

In her 403b she might keep Dodge & Cox International stock Fund (DODFX) ER 0.63%, it is a reasonable choice if no low-cost international stock index find is offered in the plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

02nz
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Re: Teacher Looking To Stop 403b Contributions

Post by 02nz » Wed Jul 03, 2019 9:38 am

Some things could still use clarification:

- Is the list of investments what you're invested in, or just the available choices?
- You said you pay a 1% advisor fee. Does this apply even to the Vanguard funds? Is there a "self-directed option" with lower or no fee, which many 403b plans offer?
- You said you have a choice of 4 investment companies for your 403b. What are they, and what fees do they charge?
- Do you have a Roth option in the 403b?
- Do you have access to a 457b?

The choice is probably not only between deferring taxes with a 1% fee and contributing to a taxable account.

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CyclingDuo
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Re: Teacher Looking To Stop 403b Contributions

Post by CyclingDuo » Wed Jul 03, 2019 9:38 am

asklenny wrote:
Wed Jul 03, 2019 8:40 am
I have certainly attempted to find low cost funds in the 403b accounts. My financial advisor argues that index funds cannot prepare and adjust for volatility like managed funds. Thus, he encourages us to invest in higher fee managed international funds vs. int'l index funds to help with this issue. Is he full of you know what? Or is this a logical argument on his part?
He's full of you know what.

In spite of that, you two are killing it! Congrats on socking away what you have been able to in your 403b's, and Roth IRA's.

You haven't mentioned yet (or I missed it), if the state you are teaching in includes teachers receiving SS in retirement. Not all states do, so curious if you will have the full three legged stool of income in retirement: pension, SS, risk portfolio?

Image

Personally, I would dig through the 4 plans for 403b's available (look into the 457b plans as well) and uncover the lowest cost way to approximate the three fund portfolio. Most 403b plans for teachers offer the Total Stock Market Index Fund, the S&P 500 Index Fund, and either an Extended Market Index Fund or a Mid Cap Index Fund (which you already have) and a Small Cap Index Fund. Ditto for international with most plans providing a Total International Stock Market Index Fund.

Administrative wrap fees over and above the underlying ER fees for the funds for 403bs/457b's are what they are for teacher's plans. Some are horrible. Some are excellent. And some fall in the middle. Some charge more than others (we pay .18% on top of the underlying ER fees for two of our plans).

In the aggregate, the higher fees you pay (including the administrative wrap fees and underlying fund fees) do matter. The higher the fees you pay, the chart shows what it means to your returns if you are paying "average investment fees" like some of your funds with the 1% on top of the underlying ER fees compared to low cost fees once you get to the 20-40 year time span (during one's working career) before rolling it all over to an IRA account. You can see that the investor paying "average" fees has to save twice as much over 40 years as the one who is paying low cost index fund fees. That matters!!!

Image

If it were my account, I would take immediate steps to get it all in the lowest cost index funds available within your plan(s).
"Everywhere is within walking distance if you have the time." ~ Steven Wright

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Re: Teacher Looking To Stop 403b Contributions

Post by surfstar » Wed Jul 03, 2019 9:48 am

VINNY wrote:
Tue Jul 02, 2019 9:36 pm
Take a look at an article just written by Keith at the Wealthy Accountant. He has an interesting observation on retirement accounts like the ones you mentioned.
Keith from The Wealthy Accountant has an interesting observation, it's worth reading.
No.

Its wrong.
I just read it and skimmed the comments - only one commenter "gets it" correctly and of course no one picked up on it and it had 0 responses. To no drift this thread off topic, read the comment from Eric on June 17, 2019 at 4:29 pm - that is the correct way to look at tax deffered vs taxable accounts. "Keith" really blew it with his article and should not be putting out such wrong information to readers that can't tell the difference.

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ruralavalon
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Re: Teacher Looking To Stop 403b Contributions

Post by ruralavalon » Wed Jul 03, 2019 10:30 am

02nz wrote:
Wed Jul 03, 2019 9:38 am
Some things could still use clarification:

- Is the list of investments what you're invested in, or just the available choices?
- You said you pay a 1% advisor fee. Does this apply even to the Vanguard funds? Is there a "self-directed option" with lower or no fee, which many 403b plans offer?
- You said you have a choice of 4 investment companies for your 403b. What are they, and what fees do they charge?
- Do you have a Roth option in the 403b?
- Do you have access to a 457b?

The choice is probably not only between deferring taxes with a 1% fee and contributing to a taxable account.
Yes, please add this information and answer the other questions which have been asked. It will clarify a lot on how best to proceed.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

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greg24
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Re: Teacher Looking To Stop 403b Contributions

Post by greg24 » Wed Jul 03, 2019 10:38 am

asklenny wrote:
Wed Jul 03, 2019 8:40 am
My financial advisor argues that index funds cannot prepare and adjust for volatility like managed funds.
This statement basically goes against the entire existence of this board.

I would avoid this advisor.

mhalley
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Re: Teacher Looking To Stop 403b Contributions

Post by mhalley » Wed Jul 03, 2019 11:25 am

A rule of thumb is that investing in a retirement account generally beats investing in a taxable account until the expenses in the retirement account reaches 1.7%. There are some assumptions and you can calculate if this number applies to to by reading the 401k section of the wiki.
I believe tax diversification is a good thing, and with things like the secure act in discussion diversifying your portfolio by increasing the contributions to taxable is not unreasonable. But until it passes, I would not stop contributing to it.If you are paying for advice in your 403, just stop.

EdLaFave
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Re: Teacher Looking To Stop 403b Contributions

Post by EdLaFave » Wed Jul 03, 2019 11:32 am

1. Please list every 403b vendor your district has approved. I can help you pick the best one, if you’re paying a 1% AUM fee then you likely have a better option.
2. Most teachers also have a 457b, do you? If so list every 457b your district has approved.
3. In addition to the 457b vendors, sometimes states sponsor a 457b. What state are you in? Does your state offer one?
4. You’ve unnecessarily chosen to invest in high cost investments in your 403bs. That is really hurting you.
5. Taxable accounts certainly hit you with a capital gains tax on your profits when you sell, but you also get hit with annual taxes due to distributions from the funds (some at the capital gains rate and some at the ordinary income rate).
6. It is almost certainly in your best interest to be maxing out every tax advantaged account before you put money into a taxable account because you avoid the yearly tax drag of the taxable account and in the case of Traditional tax advantaged accounts, you’ll likely pay less income tax when everything is said and done.
7. If you want recommendations on adjusting your investments then I need to know the cost and options in every account available to you. You should seek to have the summation of your entire portfolio conform to the Three Fund Portfolio.
8. It is foolish to presume to know what future tax policy will be. You’ve spoken with great certainty and with a strong hint of partisanship... I’d advise against allowing any of that to be part of your decision making process.
9. Your posts have indicated you may need to study how progressive taxation works. You seem entirely focused on marginal rates, which leads to an inaccurate picture and poor decisions.
10. There is a great conversation to be had about Traditional vs Roth. Some comments about tax advantaged accounts may confuse readers into thinking that Tax Advantaged accounts are only available in Traditional and lead people to the false analysis of Traditional vs Taxable. I just wanted to explicitly state that there is usually a third option: Roth.
11. Your advisor should be promptly fired and then fully ignored. You should not get another.

lakpr
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Re: Teacher Looking To Stop 403b Contributions

Post by lakpr » Wed Jul 03, 2019 11:58 am

greg24 wrote:
Wed Jul 03, 2019 10:38 am
asklenny wrote:
Wed Jul 03, 2019 8:40 am
My financial advisor argues that index funds cannot prepare and adjust for volatility like managed funds.
This statement basically goes against the entire existence of this board.

I would avoid this advisor.
+1. asklenny, your advisor is eating your lunch, and of course he is afraid that you will stop letting him eat your lunch, and (apologies for the harsh words) you are too blind to even notice that your advisor is eating your lunch.

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MNGopher
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Re: Teacher Looking To Stop 403b Contributions

Post by MNGopher » Wed Jul 03, 2019 1:39 pm

Lot's of good advice here. The 1% advisor fee on top of your expense ratio, makes your 403b a lot less appealing, but it still may be worth contributing more to, depending on when you will retire.

For example if you retire in your 50's you may have many years to spend down your 403b at a lower tax rate. It all depends on...

When will you retire?
How much will your pension pay out?
Does your pension kick in immediately or at a certain later age?
When do you plan to take Social security?

If you plan to work until full retirement age and have a decent pension, you may want to cut back on 403b contributions.

CnC
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Re: Teacher Looking To Stop 403b Contributions

Post by CnC » Wed Jul 03, 2019 1:46 pm

asklenny wrote:
Wed Jul 03, 2019 8:40 am


I have certainly attempted to find low cost funds in the 403b accounts. My financial advisor argues that index funds cannot prepare and adjust for volatility like managed funds. Thus, he encourages us to invest in higher fee managed international funds vs. int'l index funds to help with this issue. Is he full of you know what? Or is this a logical argument on his part?

I will also go back and note the expense ratios on those investments.

First of all he is somewhat correct but mostly wrong and giving you the advise that makes him the most money.

Yes, managed funds *can* perform better in a very volatile or bear market.

But, we are not in a volatile or bear market. And those managed funds are being trounced. There is a very high likelihood that being in a actively managed fund during a low volatility growth market like we are in now will lose you more money in taxes and fees then it will ever gain you in a high volatility bear market.

Long story short, it doesn't matter if an active fund beats the index in the short term because it likely will lose to the index in the bull runs both before and after the correction. It could even time the bear market wrong and lose there too.

VINNY
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Re: Teacher Looking To Stop 403b Contributions

Post by VINNY » Thu Jul 04, 2019 12:30 pm

surfstar wrote:
Wed Jul 03, 2019 9:48 am
VINNY wrote:
Tue Jul 02, 2019 9:36 pm
Take a look at an article just written by Keith at the Wealthy Accountant. He has an interesting observation on retirement accounts like the ones you mentioned.
Keith from The Wealthy Accountant has an interesting observation, it's worth reading.
No.

Its wrong.
I just read it and skimmed the comments - only one commenter "gets it" correctly and of course no one picked up on it and it had 0 responses. To no drift this thread off topic, read the comment from Eric on June 17, 2019 at 4:29 pm - that is the correct way to look at tax deffered vs taxable accounts. "Keith" really blew it with his article and should not be putting out such wrong information to readers that can't tell the difference.
I looked at the comments and saw that WCI commented, "the comparison should be your effective tax withdrawal rate in retirement versus your marginal rate while you are contributing." And I am paraphrasing.

If the poster is looking at a large pension in retirement which is what he indicated, his pension could fill most of the lower brackets. Assuming it's a pension like mine where I will receive 85% of what I was earning, the Roth 401k/403b and 457 could be a better option for those folks.

WCI wrote a blog recently addressing this topic and he specifically addressed the merits of Roth accounts for people anticipating large pensions, especially a couple receiving two big pensions. He indicated that these people are the exception not the rule, paraphrasing.

I will run the numbers for my situation but I can't imagine a traditional account will be better than the Roth options.

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FiveK
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Re: Teacher Looking To Stop 403b Contributions

Post by FiveK » Thu Jul 04, 2019 12:42 pm

VINNY wrote:
Thu Jul 04, 2019 12:30 pm
surfstar wrote:
Wed Jul 03, 2019 9:48 am
VINNY wrote:
Tue Jul 02, 2019 9:36 pm
Take a look at an article just written by Keith at the Wealthy Accountant. He has an interesting observation on retirement accounts like the ones you mentioned.
Keith from The Wealthy Accountant has an interesting observation, it's worth reading.
No.

Its wrong.
I just read it and skimmed the comments - only one commenter "gets it" correctly and of course no one picked up on it and it had 0 responses. To no drift this thread off topic, read the comment from Eric on June 17, 2019 at 4:29 pm - that is the correct way to look at tax deffered vs taxable accounts. "Keith" really blew it with his article and should not be putting out such wrong information to readers that can't tell the difference.
I looked at the comments and saw that WCI commented, "the comparison should be your effective tax withdrawal rate in retirement versus your marginal rate while you are contributing." And I am paraphrasing.
And WCI's comment is wrong.
WCI wrote a blog recently addressing this topic and he specifically addressed the merits of Roth accounts for people anticipating large pensions, especially a couple receiving two big pensions. He indicated that these people are the exception not the rule, paraphrasing.
Comments in that blog explain why the comparison should always be marginal vs. marginal. See also Traditional versus Roth - Bogleheads: "The main reason to prefer one type of account over the other is the comparison of marginal tax rates."
I will run the numbers for my situation....
An excellent idea, for you or anyone.

02nz
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Re: Teacher Looking To Stop 403b Contributions

Post by 02nz » Thu Jul 04, 2019 1:03 pm

I just read that blog post (https://wealthyaccountant.com/2019/06/1 ... ut-a-loan/). If he were my accountant I'd immediately fire him - and redo any tax returns he did!

retire2022
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Re: Teacher Looking To Stop 403b Contributions

Post by retire2022 » Thu Jul 04, 2019 6:13 pm

VINNY wrote:
Tue Jul 02, 2019 9:36 pm
Take a look at an article just written by Keith at the Wealthy Accountant. He has an interesting observation on retirement accounts like the ones you mentioned.

We are in a very similar situation. My wife is a teacher and I'm a police officer with similar income as you and we have very large 403b's and 457's. We've been maxing them out since 1997 and starting next year, she'll contribute to a Roth 457 and Roth 403b. I'll divert my 457 money into our taxable VTSAX.

We will have large pensions which will put us very close to what we are earning, plus when RMD's kick in from these accounts, which will probably continue to grow, we will have a significant tax problem.

Keith from The Wealthy Accountant has an interesting observation, it's worth reading.
Vinny

See link regards to transferring 457b to and from

I agree large RMD is a problem for over saver, hence is the very reason i am leaving my job in 10 months so i can withdraw in 11 years.

https://www.irs.gov/pub/irs-pdf/p590a.pdf Page 22

RMD

https://www.schwab.com/public/schwab/in ... lators/rmd

Beehave
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Re: Teacher Looking To Stop 403b Contributions

Post by Beehave » Thu Jul 04, 2019 9:35 pm

There's big value in having accounts with diversified taxation characteristics.

Example: Far in the future one of you has very high medical or long-term care needs. You pay out of the 403b and the funds withdrawn are tax-deductible.

We have no idea what future tax laws will be. So possibly this example will not apply. Or maybe it will. Or maybe there'll be some kind of tax holiday that allows you to withdraw at a discountd tax rate after years of tax-free growth. Or maybe a VAT will replace the income tax in whole or in part, thus reducing taxes owed on withdrwals. Or maybe taxes will rise and eat up years of growth on withdrawal. Since we have no idea, diversifying makes good sense. I'd recommend keeping on contributing to the 403b and to Roth and brokerage and savings etc.

cdu7
Posts: 351
Joined: Thu Feb 02, 2017 2:34 pm

Re: Teacher Looking To Stop 403b Contributions

Post by cdu7 » Fri Jul 05, 2019 7:04 am

surfstar wrote:
Tue Jul 02, 2019 3:03 pm
What kind of financial advisor tells you to pay more in taxes (brokerage vs 403b)?
The kind who gets a percentage of that brokerage account. :twisted:

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