newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

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Topic Author
barranquilla
Posts: 13
Joined: Fri Nov 15, 2019 5:07 pm

newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by barranquilla »

good afternoon bogleheads

I am looking at starting at a new job and I just wanted some help understanding some of the retirement options available to me:

403b tax deferred annuity

I understand a 403b is like a 401k but how does an annuity work? how does this differ than the typical 401k where you invest in something like mutual funds and withdraw at retirement?

403b with match
my employer will match 50% of what I defer up to a max of 6% of my base salary.

the base salary is around 290K, can someone ELI5 how this works ? I do believe I'm allowed to put in up to like 19.5K in 2020 right ?
6% of my base salary is 17,520
so if I opt to have full 19.5k deferred into the 403b, they will add an additional 9750 ? im not sure how these numbers interplay with one another.

final question
this job also offered me the option to contribute 20% of my salary to a 401a , 20% of my yearly compensation up to a maximum of 40,000
is this basically just another way to shield my income from tax ? if I leave my job can I roll the 401a into my own IRA or solo 401K that I have ?

thanks for the help !
JBTX
Posts: 6958
Joined: Wed Jul 26, 2017 12:46 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by JBTX »

barranquilla wrote: Sat Oct 17, 2020 1:31 pm good afternoon bogleheads

I am looking at starting at a new job and I just wanted some help understanding some of the retirement options available to me:

403b tax deferred annuity

I understand a 403b is like a 401k but how does an annuity work? how does this differ than the typical 401k where you invest in something like mutual funds and withdraw at retirement?

403b with match
my employer will match 50% of what I defer up to a max of 6% of my base salary.

the base salary is around 290K, can someone ELI5 how this works ? I do believe I'm allowed to put in up to like 19.5K in 2020 right ?
6% of my base salary is 17,520
so if I opt to have full 19.5k deferred into the 403b, they will add an additional 9750 ? im not sure how these numbers interplay with one another.

final question
this job also offered me the option to contribute 20% of my salary to a 401a , 20% of my yearly compensation up to a maximum of 40,000
is this basically just another way to shield my income from tax ? if I leave my job can I roll the 401a into my own IRA or solo 401K that I have ?

thanks for the help !
You can't typically have more than $19500 employee contributions per year between ALL employer accounts.

Some solo 401ks allow roll ins. Some don't. For instance Vanguard solo 401k doesn't.
Topic Author
barranquilla
Posts: 13
Joined: Fri Nov 15, 2019 5:07 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by barranquilla »

JBTX wrote: Sat Oct 17, 2020 1:37 pm
barranquilla wrote: Sat Oct 17, 2020 1:31 pm good afternoon bogleheads

I am looking at starting at a new job and I just wanted some help understanding some of the retirement options available to me:

403b tax deferred annuity

I understand a 403b is like a 401k but how does an annuity work? how does this differ than the typical 401k where you invest in something like mutual funds and withdraw at retirement?

403b with match
my employer will match 50% of what I defer up to a max of 6% of my base salary.

the base salary is around 290K, can someone ELI5 how this works ? I do believe I'm allowed to put in up to like 19.5K in 2020 right ?
6% of my base salary is 17,520
so if I opt to have full 19.5k deferred into the 403b, they will add an additional 9750 ? im not sure how these numbers interplay with one another.

final question
this job also offered me the option to contribute 20% of my salary to a 401a , 20% of my yearly compensation up to a maximum of 40,000
is this basically just another way to shield my income from tax ? if I leave my job can I roll the 401a into my own IRA or solo 401K that I have ?

thanks for the help !
You can't typically have more than $19500 employee contributions per year between ALL employer accounts.

Some solo 401ks allow roll ins. Some don't. For instance Vanguard solo 401k doesn't.
I do believe my solo 401k which is at e-trade does allow roll ins.
by taking this new job, I would not contribute anything to my solo 401k as I wouldn't really be making 1099 income anymore.
still having trouble understanding the annuity / matching / 401a portions though.
JBTX
Posts: 6958
Joined: Wed Jul 26, 2017 12:46 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by JBTX »

barranquilla wrote: Sat Oct 17, 2020 1:50 pm
JBTX wrote: Sat Oct 17, 2020 1:37 pm
barranquilla wrote: Sat Oct 17, 2020 1:31 pm good afternoon bogleheads

I am looking at starting at a new job and I just wanted some help understanding some of the retirement options available to me:

403b tax deferred annuity

I understand a 403b is like a 401k but how does an annuity work? how does this differ than the typical 401k where you invest in something like mutual funds and withdraw at retirement?

403b with match
my employer will match 50% of what I defer up to a max of 6% of my base salary.

the base salary is around 290K, can someone ELI5 how this works ? I do believe I'm allowed to put in up to like 19.5K in 2020 right ?
6% of my base salary is 17,520
so if I opt to have full 19.5k deferred into the 403b, they will add an additional 9750 ? im not sure how these numbers interplay with one another.

final question
this job also offered me the option to contribute 20% of my salary to a 401a , 20% of my yearly compensation up to a maximum of 40,000
is this basically just another way to shield my income from tax ? if I leave my job can I roll the 401a into my own IRA or solo 401K that I have ?

thanks for the help !
You can't typically have more than $19500 employee contributions per year between ALL employer accounts.

Some solo 401ks allow roll ins. Some don't. For instance Vanguard solo 401k doesn't.
I do believe my solo 401k which is at e-trade does allow roll ins.
by taking this new job, I would not contribute anything to my solo 401k as I wouldn't really be making 1099 income anymore.
still having trouble understanding the annuity / matching / 401a portions though.
I don't know anything about the annuity.

While you are maxed at $19500 (assuming you are less than 50) in employee contributions in total, in terms of employer contributions and matches, the max, including employee contributions, is about $57k per plan. So you are limited to $19500 employee contributions, you can have your employer matches and solo 401k profit sharing and as long as you are below $57k per plan you are OK.
retiredjg
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Joined: Thu Jan 10, 2008 12:56 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by retiredjg »

A 403b is a "tax sheltered annuity plan" but most of them work pretty much like a 401k. 401k plans are offered by for-profit companies. 403b plans are offered by non-profits.

The only unfortunate thing is that there are still a lot of poor 403b plans out there - meaning high fees. But things are getting better and there are now many really good plans out there as well.

I don't really understand 401a plans. At some employers, it seems a place to put a pension. At other places, is seems the place the employer match is put. Sometimes there is a mandatory employee contribution as well. You will need to find out more about how a 401a is used at this employer.

The way I read the match is they will give you 50% of 19.5k as long as it does not exceed 6% of your base salary. So for you, it would be $9750 but for someone in a smaller salary, it would be less even if they contribute the entire $19.5k. Wording of these match things is tricky and easy to misinterpret, so what I've said here is something of a guess.
Spirit Rider
Posts: 13452
Joined: Fri Mar 02, 2007 2:39 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by Spirit Rider »

Some points in no particular order:
  • The 6% 403b employer match will be on the lessor of your compensation and the compensation limit (2020 = $285K).
  • 401a mandatory employee pre-tax contributions are not considered elective employee deferrals and not included in the employee deferral limit. You will still have the full employee deferral limit (2020 = $19.5K) for the 403b plan
  • A 403b plan is unique in that it is considered controlled by the participant. This means your 403b in not aggregated with the 401a for purposes of the annual addition limit (2020 = $57K). However, the 403b will be aggregated with any employer plan of a business owned > 50% by you.
  • On $290K compensation can make an employee deferral of $19.5K + receive a $285K * 6% = $17,100 employer match = $36,100 403b annual addition
crefwatch
Posts: 655
Joined: Sun Apr 15, 2007 1:07 pm
Location: New Jersey, USA

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by crefwatch »

Although the site is more commercial that it was at first, you may find some helpful information at https://403bwise.org/ . I wonder if you have worked for a charity before? Many people don't think of a university as a charity, but that's what they are, just in case that's the situation. I mention this because employment and financial decision making can be different there than at for-profits. (In other ways, family-owned companies are very different places to work.) Charities are even quicker than for-profits in cutting retirement matching in times of financial stress.

Because everyone is primed to "hate" annuities, it's wrong to focus on that term in connection with 403(b)s. Rather, think about how there is a Federal plan afoot to make 401(k) plans describe their benefits in terms of an annuity at retirement, instead of only thinking of it as a lump sum. It's mostly in how you "look at" the accumulated money. However, 403(b)s tend to be more expensive and to have poorer choices than 401(k)s. But there are stinkers in both types of plan. Virtually no such plans force you to annuitize the money. So focus instead on expenses and flexibility rules. I think one reason for the poorer quality in 403(b)s is the desire of the charities to get a plan that costs THEM nothing, and places no WORKLOAD on their vestigial HR office!

Edit: From the 403bWise site:

The 403(b) is also known as a tax-sheltered annuity, but this is an outdated expression. It can give the impression that participants can only invest in annuity products, which was the case when section 403(b) was first added to the IRS code. However, since 1974, participants have also been able to invest in mutual funds through a 403(b)(7) custodial account. Throughout this site "the 403(b)" will refer to a 403(b) plan allowing investment in both annuity products and mutual funds.

Now that I'm retired, I know that one issue with 403(b)s can be whether there are paternalistic rules about how soon you can move the money elsewhere. I don't even mean taking an emergency withdrawal, I mean rolling it over to an IRA if you leave the job. It's not like 401(k)s, where many plans let you roll your money from the previous job into your new 401(k), if it's cheaper or has better options. They are regulated differently.

I've had 403(b)s at TIAA-CREF and at Mutual of America. The latter is not even what I'd call a predatory provider, but it was more than three times as expensive as TIAA-CREF. I wrote to them and asked how they could charge me over a 1% ER for the same product as TIAA-CREF. They replied that that was the way it was. So I rolled that 15-month job's plan over to an IRA. I was just glad to have had the chance to save for retirement those months. I had a 1-year teaching job at a college in Boston that had a 1-year waiting perior for TIAA-CREF eligibility. I suspect that was mainly to save the financially stressed school the matching costs!
Last edited by crefwatch on Sun Oct 18, 2020 4:00 pm, edited 1 time in total.
bogledogle
Posts: 291
Joined: Wed May 07, 2014 4:34 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by bogledogle »

barranquilla wrote: Sat Oct 17, 2020 1:31 pm I understand a 403b is like a 401k but how does an annuity work? how does this differ than the typical 401k where you invest in something like mutual funds and withdraw at retirement?
Sounds like this is a Pension plan. If you are working for a university/non-profit. Check if you have a 457b plan, you may be able to defer more into that account.
403b with match
my employer will match 50% of what I defer up to a max of 6% of my base salary.
the base salary is around 290K, can someone ELI5 how this works ? I do believe I'm allowed to put in up to like 19.5K in 2020 right ?
6% of my base salary is 17,520
so if I opt to have full 19.5k deferred into the 403b, they will add an additional 9750 ? im not sure how these numbers interplay with one another.
No, what they are saying is that you can put in 19.5 and employer will match 50% of 6% of your salary. So they will add 8760 (17520 % 2)
this job also offered me the option to contribute 20% of my salary to a 401a , 20% of my yearly compensation up to a maximum of 40,000
is this basically just another way to shield my income from tax ? if I leave my job can I roll the 401a into my own IRA or solo 401K that I have ?
401a have a limit of 19500 as an employee contribution. I believe you cannot contribute more than as the employee. If there is an employer match, that will take you beyond 19500, but that's about it. The key word is up to 20% of salary, not 20% of salary.
Spirit Rider
Posts: 13452
Joined: Fri Mar 02, 2007 2:39 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by Spirit Rider »

bogledogle wrote: Sun Oct 18, 2020 12:36 pm 401a have a limit of 19500 as an employee contribution. I believe you cannot contribute more than as the employee. If there is an employer match, that will take you beyond 19500, but that's about it. The key word is up to 20% of salary, not 20% of salary.
This is incorrect, a 401a plan is a separate and distinct type of employer retirement plan from a 401k.

There are only two types of employee contributions allowed to a 401a plan:
  1. Mandatory* pre-tax employee contributions. As I previously pointed out, these are not considered employee elective deferrals and are not subject to the employee deferral limit.
  2. Employee after-tax contributions. These are the same as such contributions available in 401k and 403b plans. In a 401a plan, they are referred to as voluntary after-tax contributions to distinguish them from above.
*You have the option of choosing the contribution percentage. Once done within a certain time frame of hire. That contribution is mandatory for your remaining employment.
Topic Author
barranquilla
Posts: 13
Joined: Fri Nov 15, 2019 5:07 pm

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by barranquilla »

thank you for the help everyone !

regarding the 403b plan there were the three options

403b roth annuity
403b traditional annuity
403b match

I dont know much about annuities but I do believe they're not optimal and therefore I would go for the match option.

as far as the 401a I was told I can defer up to 40,000 maximum and I do believe it is tax protected. I just wasn't sure what would happen if I left the business, if I could roll it over or take it with me etc etc.
crefwatch
Posts: 655
Joined: Sun Apr 15, 2007 1:07 pm
Location: New Jersey, USA

Re: newbie questions on retirement planning with new job. 403b annuity, 403b match, and 401a plans

Post by crefwatch »

I edited my post, viewtopic.php?p=5553562#p5553562 , to add a note (I put it in italics) from the 403bwise site. This makes it clear that a 403(b) is not, per se, an "evil annuity". You should determine which plan is best, and has the best and cheapest investment options for your needs. The term "annuity" in this case is a legacy. There may or may not be annuity products in the menu of investment options.

Just for comparison, TIAA offers some customers CREF annuity products with ERs as low as 0.23%. That number can be reduced by Revenue Sharing in plans where TIAA is hired as the administrator, which usually means periodic flat fees for administration (whatever you buy.)
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