Permanent job (finally), curious 403b match; thoughts?

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Rainmaker41
Posts: 392
Joined: Tue Apr 26, 2016 11:34 am

Permanent job (finally), curious 403b match; thoughts?

Post by Rainmaker41 » Fri Jun 16, 2017 10:00 pm

Thank you Bogleheads! After 1.5 years with my employer as a temp whose contract kept being extended, I now have an offer for a full-time permanent job from July onward. I was to be laid off at the end of June from my department, but was invited to apply for a position in an expanding department. I had a lot of momentum and internal recommendations behind me, and was fortunate to be successful in this endeavor. The offer is to be discussed on Monday.

The 403b match is curious, so I want to confirm my judgement on the optimum course. The answer seems blindingly obvious, but maybe I’m overlooking something.

First, the usual family financial template:

Cash reserves: 6 months’ budget & wedding expenses etc. set aside
Debt: 0. We took care of school loans last year. :)
Tax Filing Status: Federal: Married Filing Joint. State: It’s complicated; one of us will move to/from DC/MD, so I think that means married filing separately for a partial year for 2017. I’ve spun my wheels trying to work it out, but it doesn’t really matter and will sort itself out next tax season.
Tax Rate: 15% Federal, 6% State
State of Residence: DC/MD
Age: 27 & 26 for 2017 tax year
Income: $45,000 offer; will negotiate for $48,000 with compelling arguments but will accept the offer as is (current wages ~ $42,000, so already a bump up). 8-) Hopeful for $80,000+ between wife to be and I in 2018, but we’ll see. The benefits, life, disability, etc. insurance are absurdly excellent, but what do I know. $50,000 life insurance, 60% of salary short and long-term disability coverage, at no out of pocket cost. We’re over the moon about my time in the temp trenches paying off. :)

Desired Asset allocation: 80% stocks / 20% bonds
Desired International allocation: 40% of stocks

Current retirement assets

Size of the portfolio: ~ $34,000 end of June 2017

Breakdown within each asset class: 80% stock, 20% bond. 26% international stock, 19.9% international bond.

His Roth IRA
47.07% Vanguard LifeStrategy Growth, VASGX, 0.15% ER

Her Roth IRA
19.1% Vanguard LifeStrategy Growth, VASGX, 0.15% ER

His Principal 403b 25% employer match on all employee contributions
6.70% Mellon Capital Mgmt Bond Market Index R5 Fund, PBIQX, 0.51% ER
22.13% Principal Global Investors LargeCap S&P 500 Index R5 Fund, PLFPX, 0.42% ER
3.16% Principal Global Investors MidCap S&P 400 Index R5 Fund, PMFPX, 0.42% ER
1.83% Principal Global Investors SmallCap S&P 600 Index R5 Fund, PSSPX, 0.42% ER

Taxable

$5,000 excess cash to be used to defray expenses in the rest of 2017 in order to invest in Her job hunt and what is best for both of us in the long run. Maybe more accurate to say expenses more than covered by His salary, and excess cash will be drawn down to enable $9,000 403b contributions July-Dec 2017.

Not part of asset allocation.

New annual Contributions
$18,000 + $4,500 match to His 403b
$1,500 to Our Roth IRAs

OR

$6,000 + $1,500 match to His 403b
$11,000 Our Roth IRAs

~ Essentially equivalent gross savings rates & resulting disposable income. Our original thinking was to max Our Vanguard Roth IRAs plus whatever else we could to His 403b. Ultimately, we’d like a 30% joint savings rate pegged to two decent jobs, but $20k pre-tax equivalent annual retirement contributions are great for now all things considered. We’ll be able to meet expenses above His disposable income for the second half of 2017 using excess cash above the 6 month reserve (might not get the IRA contributions invested, but we’ll see). By that time, we hope to have a job for Her that she is happy with; better career opportunities in the DC region, and no pressure to take a job right away that isn’t a good fit. We will reevaluate 2018 targets at the end of this year as needed.

I was hired as a direct W2 employee a little over a year ago, so I am now eligible for the employer match. According to the benefits summary, this is apparently a flat 25% match on all employee contributions with no cap short of IRS limits. If I can confirm this, it would seem that instead of filling our lower ER by 0.29% Roth IRAs, we should instead fill my 403b all the way to $18,000 to grab the extra $4,500 post-FICA pre-income tax annualized compensation. We’d do $1,500 per month, not actually reaching $18,000 for 2017.

As consolation for not investing in our Roth IRAs fully, we would use the remaining $7,000 2017 space by moving reserve cash into the settlement funds. We could do the same in 2018, although hopefully we’ll have more income to allocate to investments in the Roth IRAs then.

Available funds

When I started my 403b a year ago I ruled out all funds over 1% ER, including the international funds. I already hold the only valid index funds of ~0.50% or less, approximating US Total Stock and US Total Bond. 403b weighted average ER is 0.44%.

Question:

Is there any reason we should consider that might dissuade us from maxing the 403b and 25% match?

Thanks for all the encouragement and sage advice from this community. We finally have the stability we need for the next chapter of our lives and are on the road to a truly healthy long-term financial outlook. A modest middle-class job for many is the long desired winning lottery ticket for us. Next stop, our apartment hunting. :)
Last edited by Rainmaker41 on Sun Jun 18, 2017 8:33 am, edited 2 times in total.
My username is not about money, but is my old online gaming username. I can't say that I make a great deal of money; I just hate spending it. Marrying the most loving woman in the world October 2017.

radiowave
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Joined: Thu Apr 30, 2015 5:01 pm

Re: Permanent job (finally), curious 403b match; thoughts?

Post by radiowave » Fri Jun 16, 2017 10:16 pm

A 25% match on the 403b is a no brainer. At mid .40% ER that's not too bad. I "suffered" with a similar expense ratio for over a decade.

CFM300
Posts: 1223
Joined: Sat Oct 27, 2007 5:13 am

Re: Permanent job (finally), curious 403b match; thoughts?

Post by CFM300 » Fri Jun 16, 2017 10:54 pm

Contribute the max to the 403(b) to get the 25% match. I would even consider using some of your cash reserves for living expenses in order to max your 2017 403(b) contributions. 25% matching is no joke.

You might also consider dropping the bond fund in your 403(b) and instead reallocating your IRAs to get the overall portfolio mix you want. 0.51% ER on a bond fund is pretty steep.

Congratulations on your new job.

gwrvmd
Posts: 730
Joined: Wed Dec 02, 2009 8:34 pm
Location: Calabash NC

Re: Permanent job (finally), curious 403b match; thoughts?

Post by gwrvmd » Fri Jun 16, 2017 11:26 pm

Most organizations with 403(b) retirement plans are government (police, teachers) or non profits (hospital, charities) and have low or no matches. 25% unlimited is unheard of. Take all you can get!
I agree with CFM 300, I would not use tax deferred space to buy a bond fund with a .51 ER. You are young, that .51 ER will go on for 30 to 40 years. If you want some bonds, buy them cheaper in an IRA or as taxable......Gordon
Disciple of John Neff

terran
Posts: 520
Joined: Sat Jan 10, 2015 10:50 pm

Re: Permanent job (finally), curious 403b match; thoughts?

Post by terran » Sat Jun 17, 2017 12:09 am

gwrvmd wrote:Most organizations with 403(b) retirement plans are government (police, teachers) or non profits (hospital, charities) and have low or no matches. 25% unlimited is unheard of. Take all you can get!


Not entirely true. Universities also usually have 403b plans and their matches are usually better than private industry. I've seen lots around 10% of salary. Remember that OP is talking about a match of 25% of contributions which favors lower income folks, but at higher incomes the match wouldn't actually be that great as a percentage of salary. Doesn't change the advice to get all you can though.

runner540
Posts: 296
Joined: Sun Feb 26, 2017 5:43 pm

Re: Permanent job (finally), curious 403b match; thoughts?

Post by runner540 » Sat Jun 17, 2017 9:24 am

Congrats on the job and upcoming marriage.
**check with your own tax advisor*** but you don't necessarily need to file MFS taxes: I moved the year I got married (spouse was already in new state the whole year), and we filed jointly. Check the state forms and instructions: I had to do a partial year resident form for my previous state, and the instructions were to include only the income that was earned while I lived in that state. I didn't just blindly copy the numbers from federal into the state forms.

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grabiner
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Location: Columbia, MD

Re: Permanent job (finally), curious 403b match; thoughts?

Post by grabiner » Sun Jun 18, 2017 2:39 pm

runner540 wrote:Congrats on the job and upcoming marriage.
**check with your own tax advisor*** but you don't necessarily need to file MFS taxes: I moved the year I got married (spouse was already in new state the whole year), and we filed jointly. Check the state forms and instructions: I had to do a partial year resident form for my previous state, and the instructions were to include only the income that was earned while I lived in that state. I didn't just blindly copy the numbers from federal into the state forms.


And DC and MD have reciprocity. If you are a DC resident and work in MD, you pay only DC tax on your MD income, not MD non-resident tax; conversely, if you are a MD resident and work in DC, you pay only MD tax on your DC income because DC has no non-resident tax. This will make the state taxes simpler, as neither of you is likely to have to file a non-resident form, although you may file part-year resident taxes in the year you move.
David Grabiner

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