Minimum for investment fee to be worth it.

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Topic Author
Andrew321
Posts: 112
Joined: Sat Nov 10, 2018 11:10 am

Minimum for investment fee to be worth it.

Post by Andrew321 » Fri Jan 10, 2020 8:59 pm

Hi all,

Is there a minimum amount of money I should contribute to Vanguard's 403(b) for it to be worth the $5/month fee. I know $60/year isn't much but as a percentage of what I would put in, it is high.

I am thinking about $100/month, which makes it $1,200/year. 60 bucks represents 5% of that. Should I ignore the high percentage because I'm just starting this account and $60 isn't that much over a year? Or is there a better way?

Notes:
Base salary 50k as a teacher, will probably gross 55-56 because of summer school, working over vacations, after school, private tutoring, etc.
$5,500 goes into pension fund (11%).
I max out a Roth IRA
This 403(b) does not have a Roth option.
I am not eligible for the MA SMART Plan through Empower Retirement.
In terms of alternatives for the money, I have a student loan at 0% interest and feel no reason to pay it back early. I have a good 6-month emergency fund (10k) of basic living expenses, plus 9 months of the loan payments.
**There is no match.**
Last edited by Andrew321 on Fri Jan 10, 2020 9:35 pm, edited 1 time in total.

Compound
Posts: 762
Joined: Mon May 26, 2014 1:32 pm

Re: Minimum for investment fee to be worth it.

Post by Compound » Fri Jan 10, 2020 9:00 pm

Is there an employer match for the 403b plan?

Topic Author
Andrew321
Posts: 112
Joined: Sat Nov 10, 2018 11:10 am

Re: Minimum for investment fee to be worth it.

Post by Andrew321 » Fri Jan 10, 2020 9:34 pm

There is not. Good question, I will edit.

Grt2bOutdoors
Posts: 21954
Joined: Thu Apr 05, 2007 8:20 pm
Location: New York

Re: Minimum for investment fee to be worth it.

Post by Grt2bOutdoors » Fri Jan 10, 2020 9:43 pm

How about using a taxable account instead? A fund charging up to 0.20% would cost $2.40 a year. Pick a target retirement fund.

The monthly charge of $5 seems steep to me.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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CyclingDuo
Posts: 2903
Joined: Fri Jan 06, 2017 9:07 am

Re: Minimum for investment fee to be worth it.

Post by CyclingDuo » Fri Jan 10, 2020 10:31 pm

Andrew321 wrote:
Fri Jan 10, 2020 8:59 pm
Hi all,

Is there a minimum amount of money I should contribute to Vanguard's 403(b) for it to be worth the $5/month fee. I know $60/year isn't much but as a percentage of what I would put in, it is high.

I am thinking about $100/month, which makes it $1,200/year. 60 bucks represents 5% of that. Should I ignore the high percentage because I'm just starting this account and $60 isn't that much over a year? Or is there a better way?

Notes:
Base salary 50k as a teacher, will probably gross 55-56 because of summer school, working over vacations, after school, private tutoring, etc.
$5,500 goes into pension fund (11%).
I max out a Roth IRA
This 403(b) does not have a Roth option.
I am not eligible for the MA SMART Plan through Empower Retirement.
In terms of alternatives for the money, I have a student loan at 0% interest and feel no reason to pay it back early. I have a good 6-month emergency fund (10k) of basic living expenses, plus 9 months of the loan payments.
**There is no match.**
It is fairly typical for a 401k/403b/457b plan to charge an administrative wrap fee of $40-$60 per year, so although your starting balance in the first year or two is going to be low making the fee sound rather high, as the years go on and your account balance accrues - the fee will become less and less of a thought. You get the benefit of your 403b contributions being a pre-tax deduction which lowers your taxable income.

You are on the right track with the pension, and the risk portfolio (403b and Roth IRA) as both will provide income streams in retirement. Are you in a state where you are also paying into Social Security so you will receive it as well?
"Everywhere is within walking distance if you have the time." ~ Steven Wright

tarmangani
Posts: 139
Joined: Thu Dec 28, 2017 10:14 am

Re: Minimum for investment fee to be worth it.

Post by tarmangani » Sat Jan 11, 2020 12:49 am

CyclingDuo wrote:
Fri Jan 10, 2020 10:31 pm
Andrew321 wrote:
Fri Jan 10, 2020 8:59 pm
Hi all,

Is there a minimum amount of money I should contribute to Vanguard's 403(b) for it to be worth the $5/month fee. I know $60/year isn't much but as a percentage of what I would put in, it is high.

I am thinking about $100/month, which makes it $1,200/year. 60 bucks represents 5% of that. Should I ignore the high percentage because I'm just starting this account and $60 isn't that much over a year? Or is there a better way?

Notes:
Base salary 50k as a teacher, will probably gross 55-56 because of summer school, working over vacations, after school, private tutoring, etc.
$5,500 goes into pension fund (11%).
I max out a Roth IRA
This 403(b) does not have a Roth option.
I am not eligible for the MA SMART Plan through Empower Retirement.
In terms of alternatives for the money, I have a student loan at 0% interest and feel no reason to pay it back early. I have a good 6-month emergency fund (10k) of basic living expenses, plus 9 months of the loan payments.
**There is no match.**
It is fairly typical for a 401k/403b/457b plan to charge an administrative wrap fee of $40-$60 per year, so although your starting balance in the first year or two is going to be low making the fee sound rather high, as the years go on and your account balance accrues - the fee will become less and less of a thought. You get the benefit of your 403b contributions being a pre-tax deduction which lowers your taxable income.

You are on the right track with the pension, and the risk portfolio (403b and Roth IRA) as both will provide income streams in retirement. Are you in a state where you are also paying into Social Security so you will receive it as well?
Sounds like he's in MA so he is not paying into Social Security.

OP I'd just add more into the 403(b), saving on taxes and building for retirement. That eliminates your whole concern. The monthly fee only sounds high because you've created an artificial situation by not investing more into the 403(b) account. $60/year is nothing. It's like two meals at a local restaurant here for me and my wife.

No idea what your life situation's like, though, so I can't really offer any advice on investing more, e.g., whether you're nervous to do so (but if you're maxing your Roth you probably aren't), the extent to which you can cut expenses ($10k = 6 months implies you cost only $20k/live so you should be able to scrounge up a bit more), and whether you really need a $10k emergency fund, etc.

Topic Author
Andrew321
Posts: 112
Joined: Sat Nov 10, 2018 11:10 am

Re: Minimum for investment fee to be worth it.

Post by Andrew321 » Sun Jan 12, 2020 11:32 am

Hi all,
Thanks again for all the advice. I really appreciate it, and will probably put some money into the 403(b) and put some toward large purchases. I want to buy a car this year, and could save a little faster.

Andrew

corysold
Posts: 855
Joined: Mon Mar 24, 2014 12:58 pm

Re: Minimum for investment fee to be worth it.

Post by corysold » Sun Jan 12, 2020 11:51 am

Check and see if that fee ever goes away also. On my wife's 403b, the yearly fee goes away at a certain balance and then you just have the fund expenses.

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