403B and 457 Plan Options

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Capybara90
Posts: 7
Joined: Mon Jul 23, 2018 9:26 pm

403B and 457 Plan Options

Post by Capybara90 » Thu Jul 04, 2019 12:20 am

I recently got hired at a state university that offers both a 403B and 457 plan. I can enroll in either of these programs or both right now, but I will not receive any matching contributions until after my first full year of employment. After my first year, it is mandatory to invest 5.5% of my income and they will match it with an 8.5% contribution that is 100% vested from day one.

- I am planning on contributing 10% of my salary to the 403b plan for now and then put a little extra in the 457 plan. They offer a Roth 403B and a traditional 403B, but I am not sure which one is my best option. Which one should I should I start with?

- I don't care much for their choice of investment firms, which is TIAA-CREF and Voya Financial. Here are the options available from TIAA-CREF. So far, I am only interested in CREF Bond and CREF Stock, but I am still not a fan of the expense ratios. What are you thoughts on building a portfolio with these options?

AB Small Cap Growth Portfolio I Equities
5 STARS 5 STARSOUT OF 576 FUNDS 15.03% 10.96% 19.76% 11.20% 3/31/2019 0.91% / 0.91%
American Funds Capital Income Builder Fund Class R6 Equities
4 STARS 4 STARSOUT OF 405 FUNDS 3.89% 4.83% 9.50% 8.94% 3/31/2019 0.29% / 0.29%
American Funds EuroPacific Growth Fund - R6 Equities
3 STARS 3 STARSOUT OF 398 FUNDS -4.66% 4.27% 9.94% 8.87% 3/31/2019 0.49% / 0.49%
Artisan International Fund Institutional Class Shares Equities
4 STARS 4 STARSOUT OF 398 FUNDS -1.75% 2.68% 10.48% 7.56% 3/31/2019 0.96% / 0.96%
Columbia Mid Cap Index Fund Instl Equities
4 STARS 4 STARSOUT OF 373 FUNDS 2.34% 8.04% 16.03% 8.56% 3/31/2019 0.32% / 0.20%

Columbia Small Cap Value Fund I Instl 3 Equities
3 STARS 3 STARSOUT OF 388 FUNDS -3.67% 5.88% -- 11.68% 3/31/2019 0.93% / 0.89%

CREF Bond Market Account (R3)

Fixed Income
4 STARS 4 STARSOUT OF 337 FUNDS 7.99% 3.13% 4.09% 5.80% 6/30/2019 0.27%

CREF Equity Index Account (R3)
The performance shown for Class R3 that is prior to its inception date is based on the Account's Class R1. The inception date of the Account's Class R1 is listed on the Account Class R1's profile page. The performance for these periods has not been restated to reflect the lower expenses of the Class R3. If these lower expenses had been reflected, the performance of the Class R3 for these periods would have been higher.

Equities
4 STARS 4 STARSOUT OF 1197 FUNDS 8.80% 9.94% 14.32% 9.50% 6/30/2019 0.22%


Equities
3 STARS 3 STARSOUT OF 718 FUNDS 3.31% 5.96% 10.44% 7.54% 6/30/2019 0.27%

CREF Growth Account (R3)


Equities
4 STARS 4 STARSOUT OF 1229 FUNDS 9.97% 13.07% 15.90% 9.04% 6/30/2019 0.24%
Expenses (Investment Advisory Expenses, Administrative Expenses, Distribution Expenses (12b-1), Mortality and Expense Risk Charges) are estimated each year based on projected expense and asset levels. Differences between actual expenses and the estimate are adjusted quarterly and are reflected in current investment results.


CREF Inflation-Linked Bond Account (R3)
The performance shown for Class R3 that is prior to its inception date is based on the Account's Class R1. The inception date of the Account's Class R1 is listed on the Account Class R1's profile page. The performance for these periods has not been restated to reflect the lower expenses of the Class R3. If these lower expenses had been reflected, the performance of the Class R3 for these periods would have been higher.

Fixed Income
3 STARS 3 STARSOUT OF 198 FUNDS 4.40% 1.28% 3.19% 4.85% 6/30/2019 0.22%
Expenses (Investment Advisory Expenses, Administrative Expenses, Distribution Expenses (12b-1), Mortality and Expense Risk Charges) are estimated each year based on projected expense and asset levels. Differences between actual expenses and the estimate are adjusted quarterly and are reflected in current investment results.

The Account’s total annual expense deduction appears in the Account's prospectus, and may be different than that shown herein due to rounding. Please refer to the prospectus for further details.
CREF Money Market Account (R3)
The performance shown for Class R3 that is prior to its inception date is based on the Account's Class R1. The inception date of the Account's Class R1 is listed on the Account Class R1's profile page. The performance for these periods has not been restated to reflect the lower expenses of the Class R3. If these lower expenses had been reflected, the performance of the Class R3 for these periods would have been higher.

Money Market
N/A

0 STARS 0 STARS 2.06% 0.64% 0.32% 3.15% 6/30/2019 0.23%
Expenses (Investment Advisory Expenses, Administrative Expenses, Distribution Expenses (12b-1), Mortality and Expense Risk Charges) are estimated each year based on projected expense and asset levels. Differences between actual expenses and the estimate are adjusted quarterly and are reflected in current investment results.

Multi-Asset
4 STARS 4 STARSOUT OF 688 FUNDS 7.84% 5.83% 9.19% 8.24% 6/30/2019 0.24%

Equities
4 STARS 4 STARSOUT OF 176 FUNDS 4.97% 7.31% 11.86% 9.79% 6/30/2019 0.30%

Davis NY Venture Y Equities
2 STARS 2 STARSOUT OF 1197 FUNDS 1.44% 8.14% 14.03% 8.67% 3/31/2019 0.62% / 0.62%
DFA Emerging Markets Portfolio Equities
3 STARS 3 STARSOUT OF 711 FUNDS -8.24% 3.49% 9.11% 6.77% 3/31/2019 0.57% / 0.47%

DFA International Small Company I Equities
3 STARS 3 STARSOUT OF 92 FUNDS -11.09% 3.05% 11.84% 6.68% 3/31/2019 0.53% / 0.53%
Dodge & Cox International Stock Fund Equities
3 STARS 3 STARSOUT OF 288 FUNDS -8.00% 0.85% 10.25% 6.86% 3/31/2019 0.63% / 0.63%
Eaton Vance Large Cap Value Fund Class R6 Equities
4 STARS 4 STARSOUT OF 1101 FUNDS 7.84% -- -- 6.61% 3/31/2019 0.72% / 0.72%
Goldman Sachs Government Income Instl Fixed Income
3 STARS 3 STARSOUT OF 204 FUNDS 3.74% 1.94% 2.71% 4.45% 3/31/2019 0.72% / 0.57%

Harbor International Fund Institutional Class Equities
2 STARS 2 STARSOUT OF 610 FUNDS -9.43% -0.32% 8.59% 9.99% 3/31/2019 0.89% / 0.77%

Invesco American Value Fund Class R6 Equities
2 STARS 2 STARSOUT OF 354 FUNDS -1.77% 4.52% -- 9.01% 3/31/2019 0.77% / 0.77%
Lazard Emerging Markets Equity Portfolio Institutional Class Equities
3 STARS 3 STARSOUT OF 711 FUNDS -13.69% 0.87% 8.27% 6.45% 3/31/2019 1.07% / 1.07%
Lord Abbett Developing Growth Fund Class I Equities
4 STARS 4 STARSOUT OF 576 FUNDS 24.87% 9.60% 19.06% 9.11% 3/31/2019 0.68% / 0.68%
Northern Small Cap Value Fund Equities
4 STARS 4 STARSOUT OF 388 FUNDS -0.45% 5.73% 14.18% 9.62% 3/31/2019 1.13% / 1.00%
Northern Trust Investments, Inc. has contractually agreed to reimburse a portion of the operating expenses of the Fund (other than certain excepted expenses, i.e., Acquired Fund Fees and Expenses, the compensation paid to each Independent Trustee of the Trust, expenses of third party consultants engaged by the Board of Trustees, membership dues paid to the Investment Company Institute and Mutual Fund Directors Forum, expenses in connection with the negotiation and renewal of the revolving credit facility, extraordinary expenses and interest) to the extent the �Total Annual Fund Operating Expenses� exceed 1.00%. The �Total Annual Fund Operating Expenses After Expense Reimbursement� may be higher than the contractual limitation as a result of the excepted expenses, including but not limited to Acquired Fund Fees and Expenses, that are not reimbursed. This contractual limitation may not be terminated before July 31, 2019 without the approval of the Board of Trustees.
PGIM Jennison Mid Cap Growth R6 Equities
3 STARS 3 STARSOUT OF 542 FUNDS 9.26% 8.40% -- 10.54% 3/31/2019 0.58% / 0.58%
PIMCO Total Return Instl Fixed Income
3 STARS 3 STARSOUT OF 549 FUNDS 3.83% 2.85% 4.84% 7.11% 3/31/2019 0.55% / 0.55%
Royce Pennsylvania Mutual Fund Institutional Class Equities
3 STARS 3 STARSOUT OF 633 FUNDS 2.08% 5.89% -- 8.56% 3/31/2019 0.88% / 0.88%
T. Rowe Price Cpital Appreciation Fund Multi-Asset
5 STARS 5 STARSOUT OF 688 FUNDS 12.12% 10.10% 14.28% 11.32% 3/31/2019 0.72% / 0.71%

Templeton Global Bond Fund Class R6 Fixed Income
4 STARS 4 STARSOUT OF 191 FUNDS 2.19% 2.03% -- 1.72% 3/31/2019 0.67% / 0.57%

TIAA Real Estate Account Real Estate
4 STARS 4 STARSOUT OF -- FUNDS 5.26% 6.36% 6.91% 6.28% 6/30/2019 0.83%


The Account’s total annual expense deduction appears in the Account's prospectus, and may be different than that shown herein due to rounding. Please refer to the prospectus for further details.
TIAA Traditional Annuity - Group Supplemental Retirement Annuity Guaranteed
Guarantees are based on the claims-paying ability of TIAA. TIAA Traditional is a guaranteed insurance contract and not an investment for federal securities law purposes.
N/A

0 STARS 0 STARS 3.15% 3.24% 3.29% -- 6/30/2019 -- / --
TIAA-CREF Bond Fund (Institutional) Fixed Income
3 STARS 3 STARSOUT OF 549 FUNDS 7.97% 3.39% 4.55% 5.12% 6/30/2019 0.30% / 0.30%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 7/31/2019. Please see the prospectus for details.
TIAA-CREF Bond Index Fund (Institutional) Fixed Income
3 STARS 3 STARSOUT OF 337 FUNDS 7.72% 2.82% -- 3.46% 6/30/2019 0.12% / 0.12%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 7/31/2019. Please see the prospectus for details.
TIAA-CREF Bond Plus Fund (Institutional) Fixed Income
4 STARS 4 STARSOUT OF 549 FUNDS 7.91% 3.51% 5.16% 4.69% 6/30/2019 0.30% / 0.30%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 7/31/2019. Please see the prospectus for details.
TIAA-CREF Equity Index Fund (Institutional) Equities
4 STARS 4 STARSOUT OF 1197 FUNDS 8.94% 10.17% 14.62% 6.20% 6/30/2019 0.05% / 0.05%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF Growth & Income Fund (Institutional) Equities
3 STARS 3 STARSOUT OF 1229 FUNDS 6.87% 10.12% 14.31% 6.47% 6/30/2019 0.40% / 0.40%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF High-Yield Fund (Institutional) Fixed Income
4 STARS 4 STARSOUT OF 608 FUNDS 8.39% 4.56% 8.39% 6.99% 6/30/2019 0.36% / 0.36%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 7/31/2019. Please see the prospectus for details.
TIAA-CREF Inflation-Linked Bond Fund (Institutional) Fixed Income
3 STARS 3 STARSOUT OF 198 FUNDS 4.40% 1.20% 3.22% 3.95% 6/30/2019 0.26% / 0.26%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 7/31/2019. Please see the prospectus for details.
TIAA-CREF International Equity Fund (Institutional) Equities
2 STARS 2 STARSOUT OF 610 FUNDS -9.17% 0.41% 6.94% 4.40% 6/30/2019 0.48% / 0.48%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF International Equity Index Fund (Institutional) Equities
4 STARS 4 STARSOUT OF 610 FUNDS 1.46% 2.40% 7.03% 7.57% 6/30/2019 0.06% / 0.06%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF Large-Cap Growth Fund (Institutional) Equities
4 STARS 4 STARSOUT OF 1229 FUNDS 9.17% 13.75% 16.33% 10.26% 6/30/2019 0.41% / 0.41%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF Large-Cap Growth Index Fund (Institutional) Equities
4 STARS 4 STARSOUT OF 1229 FUNDS 11.51% 13.32% 16.19% 10.81% 6/30/2019 0.05% / 0.05%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF Large-Cap Value Fund (Institutional) Equities
2 STARS 2 STARSOUT OF 1101 FUNDS 1.68% 5.66% 11.83% 9.08% 6/30/2019 0.40% / 0.40%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF Large-Cap Value Index Fund (Institutional) Equities
4 STARS 4 STARSOUT OF 1101 FUNDS 8.43% 7.41% 13.11% 9.19% 6/30/2019 0.05% / 0.05%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 2/29/2020. Please see the prospectus for details.
TIAA-CREF Lifecycle 2010 Fund (Institutional)
The fund's Retirement Class began operations on October 15, 2004. Performance shown prior to the inception of the Institutional Class is based on the performance of the fund's Retirement Class. Performance has not been restated to reflect the lower expenses of the Institutional Class. If the expense differential had been reflected, performance for these periods would have been higher.

Multi-Asset
5 STARS 5 STARSOUT OF 113 FUNDS 5.75% 4.98% 8.07% 5.85% 6/30/2019 0.49% / 0.37%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 9/30/2019. Please see the prospectus for details.
TIAA-CREF Lifecycle 2015 Fund (Institutional)
The fund's Retirement Class began operations on October 15, 2004. Performance shown prior to the inception of the Institutional Class is based on the performance of the fund's Retirement Class. Performance has not been restated to reflect the lower expenses of the Institutional Class. If the expense differential had been reflected, performance for these periods would have been higher.

Multi-Asset
4 STARS 4 STARSOUT OF 110 FUNDS 5.77% 5.27% 8.63% 6.07% 6/30/2019 0.50% / 0.38%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 9/30/2019. Please see the prospectus for details.
TIAA-CREF Lifecycle 2020 Fund (Institutional)
The fund's Retirement Class began operations on October 15, 2004. Performance shown prior to the inception of the Institutional Class is based on the performance of the fund's Retirement Class. Performance has not been restated to reflect the lower expenses of the Institutional Class. If the expense differential had been reflected, performance for these periods would have been higher.

Multi-Asset
5 STARS 5 STARSOUT OF 211 FUNDS 5.51% 5.61% 9.25% 6.25% 6/30/2019 0.50% / 0.39%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 9/30/2019. Please see the prospectus for details.
TIAA-CREF Lifecycle 2025 Fund (Institutional)
The fund's Retirement Class began operations on October 15, 2004. Performance shown prior to the inception of the Institutional Class is based on the performance of the fund's Retirement Class. Performance has not been restated to reflect the lower expenses of the Institutional Class. If the expense differential had been reflected, performance for these periods would have been higher.

Multi-Asset
5 STARS 5 STARSOUT OF 187 FUNDS 5.25% 5.99% 9.91% 6.47% 6/30/2019 0.52% / 0.41%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 9/30/2019. Please see the prospectus for details.
TIAA-CREF Lifecycle 2030 Fund (Institutional)
The fund's Retirement Class began operations on October 15, 2004. Performance shown prior to the inception of the Institutional Class is based on the performance of the fund's Retirement Class. Performance has not been restated to reflect the lower expenses of the Institutional Class. If the expense differential had been reflected, performance for these periods would have been higher.

Multi-Asset
4 STARS 4 STARSOUT OF 201 FUNDS 4.89% 6.32% 10.50% 6.62% 6/30/2019 0.53% / 0.42%
A contractual arrangement is in place that limits certain fees and/or expenses. Had fees/expenses not been limited ("capped"), currently or in the past, returns would have been lower. This arrangement is scheduled to expire on 9/30/2019. Please see the prospectus for details.

EdLaFave
Posts: 430
Joined: Fri Dec 26, 2014 2:31 am

Re: 403B and 457 Plan Options

Post by EdLaFave » Thu Jul 04, 2019 11:15 am

Capybara90 wrote:
Thu Jul 04, 2019 12:20 am
- I am planning on contributing 10% of my salary to the 403b plan for now and then put a little extra in the 457 plan. They offer a Roth 403B and a traditional 403B, but I am not sure which one is my best option. Which one should I should I start with?

- I don't care much for their choice of investment firms, which is TIAA-CREF and Voya Financial. Here are the options available from TIAA-CREF. So far, I am only interested in CREF Bond and CREF Stock, but I am still not a fan of the expense ratios. What are you thoughts on building a portfolio with these options?
In my view, you should definitely try to max out both accounts (403b and 457b) as well as your IRA. The only reason I’d leave tax advantaged space on the table is if it were excessively expensive and I wasn’t going to quit that job for a long time.

As far as Roth vs Traditional, that is constantly argued over because the answer depends on unknowable information (future tax rates, market performance, future spending, retirement duration, etc). You should read: https://thefinancebuff.com/case-against-roth-401k.html

The goal is to put enough money in your Traditional accounts such that every dollar withdrawn will be in a tax bracket that is equal to or less than your current marginal bracket. Besides including unknowable information, this calculation should also include your ability to perform Roth conversions in retirement, particularly before RMDs hit. The rest of the dollars are better off in Roth. I think most people are better off using Traditional most of the time, but Roth certainly has its place (especially for those saving more than they really need for retirement or those with temporarily low income).

The text you provided was hard to read, but it looks like you’ve picked out the low cost options so you seem to be in good shape.

Buckeye Chuck
Posts: 57
Joined: Wed Jun 05, 2019 8:54 pm

Re: 403B and 457 Plan Options

Post by Buckeye Chuck » Thu Jul 04, 2019 1:49 pm

My 457 plan allows penalty free withdrawals when I leave employment at any age. I will be leaving in 5 years at 56. I will have access if I need it.. may want to look into this feature. The time goes by fast.

sawhorse
Posts: 3560
Joined: Sun Mar 01, 2015 7:05 pm

Re: 403B and 457 Plan Options

Post by sawhorse » Fri Jul 05, 2019 6:50 pm

I would consider using TIAA Traditional for part or even all of your bond portion. You have the GSRA version of Traditional, so you are not hampered by prolonged withdrawals as with some versions of Traditional.

A three-fund portfolio could use the following. The index funds have super low expense ratios and are very comparable to the Vanguard funds.

TIAA CREF Equity Index Fund
TIAA CREF International Equity Index Fund
TIAA Traditional (or TIAA CREF Bond Index if you don't want to use Traditional)

A lot of TIAA CREF customers put some money into TIAA Real Estate Account. It's a very unique fund that is different from traditional REITs. Don't be put off by the high expense ratio listed for it. The expense ratio for the fund cannot be thought of in the same way as other expense ratios.

Charon
Posts: 137
Joined: Thu May 03, 2018 12:08 pm

Re: 403B and 457 Plan Options

Post by Charon » Sat Jul 06, 2019 12:09 pm

EdLaFave wrote:
Thu Jul 04, 2019 11:15 am
In my view, you should definitely try to max out both accounts (403b and 457b) as well as your IRA. The only reason I’d leave tax advantaged space on the table is if it were excessively expensive and I wasn’t going to quit that job for a long time.
I think you have an optimistic view of how much money new hires at state universities make ;) I've been at my job a few years, and even so maxing all this would take nearly 2/3 of my gross income. YMMV - maybe you're a full professor in engineering at a flagship, or you're high up in administration - but for nearly anyone else, this isn't reasonable. (It's so unusual that my benefits office didn't know how to help me set up the 457b. Most employees never hit the max on their 403b.)

OP, I use a three-fund portfolio of CREF options in the 403b, and use a Roth at Vanguard. Contributing some to the 457b (instead of the 403b) may be worthwhile, as indeed you can access that money any time you leave employment.

tibbitts
Posts: 10739
Joined: Tue Feb 27, 2007 6:50 pm

Re: 403B and 457 Plan Options

Post by tibbitts » Sat Jul 06, 2019 12:17 pm

EdLaFave wrote:
Thu Jul 04, 2019 11:15 am
In my view, you should definitely try to max out both accounts (403b and 457b) as well as your IRA. The only reason I’d leave tax advantaged space on the table is if it were excessively expensive and I wasn’t going to quit that job for a long time.
Lots of people, including those who work at state universities, earn less than the combined contribution limit to the accounts you mentioned.

EdLaFave
Posts: 430
Joined: Fri Dec 26, 2014 2:31 am

Re: 403B and 457 Plan Options

Post by EdLaFave » Sat Jul 06, 2019 12:44 pm

I totally get it. I wanted to teach math, physics, and/or computer science courses. A department head explained to me that they’re only hiring adjuncts who are basically paid minimum wage, have no guarantee of consistent hours, and may or may not, after many years, become tenured. I’ve read several blogs of professors getting exploited. So instead I’m a software engineer.

I just want to encourage people to maximize their tax advantaged space.

fposte
Posts: 1787
Joined: Mon Sep 02, 2013 1:32 pm

Re: 403B and 457 Plan Options

Post by fposte » Sat Jul 06, 2019 12:56 pm

EdLaFave wrote:
Sat Jul 06, 2019 12:44 pm
I totally get it. I wanted to teach math, physics, and/or computer science courses. A department head explained to me that they’re only hiring adjuncts who are basically paid minimum wage, have no guarantee of consistent hours, and may or may not, after many years, become tenured. I’ve read several blogs of professors getting exploited. So instead I’m a software engineer.
Also worth remembering that most people working at universities aren’t faculty at all.

DoTheMath
Posts: 375
Joined: Sat Jul 04, 2015 1:11 pm
Location: The Plains

Re: 403B and 457 Plan Options

Post by DoTheMath » Sat Jul 06, 2019 1:50 pm

Does your employer offer a defined benefit (aka pension) option? State universities are one of the ever fewer places where this an option. If they do then depending on your circumstances and best guess at future plans, you may want to consider that.

Are your investment options the same in the 403b and 457b? Sometimes they are, sometimes they aren't. That would definitely sway me one way or the other.

The Roth vs Traditional is an endless debate. The right answer will depend on your particulars. Assuming your marginal tax rate now and when you withdraw the money is the same, then it doesn't make a difference.

For the large majority, your marginal tax rate now is higher than it will be in retirement. For example, the amount you withdraw at retirement will be just what you need for expenses while right the amount you earn is covering expenses, but also retirement savings, a mortgage, student loans, etc. Of course your expenses won't be quite the same then as now, but you get the idea. Also, as mentioned above, many people expect to have some years between retirement and before Social Security and RMDs kick in which gives them a window to shift money from Traditional to Roth at low tax rates. All in all this makes the Traditional the better option for most.

For those who have a pension, a spouse's savings, an inheritance coming, or otherwise expect to be pushed into higher tax brackets in retirement, then Roth makes more sense. So it is a bit case-by-case, but it isn't hard to guess if you are in this second category.

Personally I hedge my bets. My 403b/457b money is Traditional but I do use a Roth IRA to have some after-tax money available. That way I can be flexible by withdrawing from whichever account makes the most sense.

Of course, all of the above assumes that tax rates are similar to today. If you think rates are going to change dramatically, then you could include that in your considerations. That said, people have been saying since Reagan that the tax rates have to go up dramatically and yet here we are.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

sschullo
Posts: 2558
Joined: Sun Apr 01, 2007 8:25 am
Location: Rancho Mirage, CA
Contact:

Re: 403B and 457 Plan Options

Post by sschullo » Sat Jul 06, 2019 1:51 pm

fposte wrote:
Sat Jul 06, 2019 12:56 pm
EdLaFave wrote:
Sat Jul 06, 2019 12:44 pm
I totally get it. I wanted to teach math, physics, and/or computer science courses. A department head explained to me that they’re only hiring adjuncts who are basically paid minimum wage, have no guarantee of consistent hours, and may or may not, after many years, become tenured. I’ve read several blogs of professors getting exploited. So instead I’m a software engineer.
Also worth remembering that most people working at universities aren’t faculty at all.
Furthermore, I could never even max out my 403(b) during my entire 24-year career as a lowly paid elementary teacher either, but I did what I could as the pension benefit made up the rest for a comfortable retirement after all.
Public School K-12 Educators: "Ask NOT what your annuity sales person can do for you, ask what you can do to be a Do-It-Yourselfer (DIY)."

EdLaFave
Posts: 430
Joined: Fri Dec 26, 2014 2:31 am

Re: 403B and 457 Plan Options

Post by EdLaFave » Sat Jul 06, 2019 2:46 pm

DoTheMath wrote:
Sat Jul 06, 2019 1:50 pm
The Roth vs Traditional is an endless debate. The right answer will depend on your particulars. Assuming your marginal tax rate now and when you withdraw the money is the same, then it doesn't make a difference.
I think this needs a bit of clarification.

If a dollar you invest today will eventually be withdrawn into a tax bracket that’s equal to your current marginal tax bracket, then yes, there is no difference between Traditional vs Roth.

However, if your marginal tax rate in retirement is equal to your current marginal tax rate, then the Traditional offers you tax savings. This is because in retirement you’ll make use of deductions and the lower tax brackets before you get to your marginal tax bracket. That means most of your withdrawals from the Traditional account will be taxed less than the marginal tax rate you had while working...none will be taxed higher.

The goal is to put enough in the Traditional account such that every dollar withdrawn falls into a tax bracket that is lower than (or equal to) the top marginal tax bracket you were in when you made the original contribution.
DoTheMath wrote:
Sat Jul 06, 2019 1:50 pm
Of course, all of the above assumes that tax rates are similar to today. If you think rates are going to change dramatically, then you could include that in your considerations. That said, people have been saying since Reagan that the tax rates have to go up dramatically and yet here we are.
In the small set of cases I’ve personally observed, people have made terrible decisions about money based on emotional political preferences. For example, selling all of their stock when Obama got elected and only buying back in some time in 2018...ouch!

Even if we do raise taxes, there are lots of outcomes where your taxes don’t get raised. A large estate tax, tripling the corporate tax rate, a wealth tax on portfolios over 50 million, a 70% tax rate in ordinary income over 500k, etc...these proposals would raise a lot of tax revenue, but none of them would affect a “modest” retiree that pulls 50k from a Traditional account each year. So even if taxes go up during your retirement...there are plenty of ways for that to happen, which won’t hurt you.

fposte
Posts: 1787
Joined: Mon Sep 02, 2013 1:32 pm

Re: 403B and 457 Plan Options

Post by fposte » Sat Jul 06, 2019 4:37 pm

sschullo wrote:
Sat Jul 06, 2019 1:51 pm
fposte wrote:
Sat Jul 06, 2019 12:56 pm
EdLaFave wrote:
Sat Jul 06, 2019 12:44 pm
I totally get it. I wanted to teach math, physics, and/or computer science courses. A department head explained to me that they’re only hiring adjuncts who are basically paid minimum wage, have no guarantee of consistent hours, and may or may not, after many years, become tenured. I’ve read several blogs of professors getting exploited. So instead I’m a software engineer.
Also worth remembering that most people working at universities aren’t faculty at all.
Furthermore, I could never even max out my 403(b) during my entire 24-year career as a lowly paid elementary teacher either, but I did what I could as the pension benefit made up the rest for a comfortable retirement after all.
Yep.

And I'm not meaning to get at Ed, whose excellent posts I look for on 403b/457 related threads. It's just that the public/nonprofit/education sector tends to pay less than the private, so ironically people with access to more tax-advantaged space are likely to be less able to make use of it. We do talk a lot here about maxing tax-advantaged space, and if you've got enough pay for financial overflow it's a no-brainer, but it can become the IRS-limit cart pulling the life horse if you don't, since it's not like you get a special bonus if you hit the ceiling. If the max space with 403b and 457 is $38k or $50k and you're making, say, the common salary of $50k, it's not just reasonable but wise to contribute what works for your budget rather than focus on the IRS limit.

DoTheMath
Posts: 375
Joined: Sat Jul 04, 2015 1:11 pm
Location: The Plains

Re: 403B and 457 Plan Options

Post by DoTheMath » Sat Jul 06, 2019 4:48 pm

Ed, thanks for the clarifications. I agree completely. The correct comparison is the marginal rate for each dollar being saved now vs. the marginal rate when each dollar is being withdrawn. But, as you say, for most people their savings is mostly or entirely at their current top bracket while most of the withdrawals will be happen at lower rates. Which is why traditional is the best for most. Only if you have really large amounts of savings or other income streams pushing you up into the higher brackets in retirement does a Roth start becoming attractive.

And I agree that guessing future tax rates is a fools game. We can't even guess how the stock market will move in the future -- and that's when most everyone agrees that up is the preferred direction! Never mind tax rates....

I think the reasonable working assumption is tax rates will be similar to what they are now. But it is good to remind folks they aren't fixed in stone. That's why I personally do a little of both so as to give myself some flexibility to adapt to future events. But like AA, while we can make sensible choices, we'll only know if we did it right when it's all over and done with.
EdLaFave wrote:
Sat Jul 06, 2019 2:46 pm
DoTheMath wrote:
Sat Jul 06, 2019 1:50 pm
The Roth vs Traditional is an endless debate. The right answer will depend on your particulars. Assuming your marginal tax rate now and when you withdraw the money is the same, then it doesn't make a difference.
I think this needs a bit of clarification.

If a dollar you invest today will eventually be withdrawn into a tax bracket that’s equal to your current marginal tax bracket, then yes, there is no difference between Traditional vs Roth.

However, if your marginal tax rate in retirement is equal to your current marginal tax rate, then the Traditional offers you tax savings. This is because in retirement you’ll make use of deductions and the lower tax brackets before you get to your marginal tax bracket. That means most of your withdrawals from the Traditional account will be taxed less than the marginal tax rate you had while working...none will be taxed higher.

The goal is to put enough in the Traditional account such that every dollar withdrawn falls into a tax bracket that is lower than (or equal to) the top marginal tax bracket you were in when you made the original contribution.
DoTheMath wrote:
Sat Jul 06, 2019 1:50 pm
Of course, all of the above assumes that tax rates are similar to today. If you think rates are going to change dramatically, then you could include that in your considerations. That said, people have been saying since Reagan that the tax rates have to go up dramatically and yet here we are.
In the small set of cases I’ve personally observed, people have made terrible decisions about money based on emotional political preferences. For example, selling all of their stock when Obama got elected and only buying back in some time in 2018...ouch!

Even if we do raise taxes, there are lots of outcomes where your taxes don’t get raised. A large estate tax, tripling the corporate tax rate, a wealth tax on portfolios over 50 million, a 70% tax rate in ordinary income over 500k, etc...these proposals would raise a lot of tax revenue, but none of them would affect a “modest” retiree that pulls 50k from a Traditional account each year. So even if taxes go up during your retirement...there are plenty of ways for that to happen, which won’t hurt you.
“I am losing precious days. I am degenerating into a machine for making money. I am learning nothing in this trivial world of men. I must break away and get out into the mountains...” -- John Muir

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