Alternatives to 401K

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pageskipro
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Alternatives to 401K

Post by pageskipro » Thu Jan 11, 2018 10:08 am

Hi, Thanks in advance for your ideas and help.

I have a state retirement plan (PERA) in Colorado. I am 60 years old so I can add 6.5K/year to a Roth IRA which I do and have with a Vanguard Target Retirement Fund. I would like to invest about 20K in addition and see I can do that with PERA and as a "catch up". I have the option of opening a 401K without any matching funds from my employer (since they are already matching the mandatory retirement deduction).
I would prefer not to do this with PERA because I am under the impression that they are not necessarily the best investment option.
Is there any other way to use this "catch up" feature to invest a chunk of money and have the tax advantage of the 401k?

Thanks again,

Cynthia

Edited 011218, with fund choices.
Here is a link to my funding options with PERA 401k.
https://copera401k.voya.com/einfo/fundi ... c754db3faf

I also have the option of a 403b with TIAA that link is here
https://www.tiaa.org/public/tcm/cu/inve ... ions/plan2

I am leaning towards the 401K because of the additional tax savings. I am assuming I will actually drop down a tax bracket if I put the maximum in and still get my individual deduction of about 11k in 2018. I have the money to invest without docking my pay, but could try to live off of my reduced paycheck. It would be a reality check for retirement.

I am also assuming I can do the maximum for 401k - which I think is 24,500 for age 50+, and I can still do a Roth max of 6500. I am not sure if I will do both of these I might not be able to afford it so I might put 18,500 in 401 and 6500 into Roth. My Roth is Vanguard Target Retirement 2025 and I have put in 13,000 in the last 9 months.

Thanks!
Last edited by pageskipro on Fri Jan 12, 2018 10:15 am, edited 1 time in total.

bloom2708
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Re: Alternatives to 401K

Post by bloom2708 » Thu Jan 11, 2018 11:49 am

Welcome.

I think you would be opening a taxable brokerage account (post-tax, not tax sheltered) and investing post-tax. Vanguard, Fidelity, Schwab are all good choices.

A Solo 401k is for self-employed people. I don't get the impression that you are self-employed with the state retirement plan.

You might have to provide more information. Bump for other ideas.
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Elbowman
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Re: Alternatives to 401K

Post by Elbowman » Thu Jan 11, 2018 11:58 am

It is important to know 1) what your marginal tax rate is, and 2) how bad the PERA funds are. If you are close you retirement you could get the tax break of the 401k, only pay the PERA fees for a few years, and then retire and roll the 401k into better IRA funds.

pageskipro
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Re: Alternatives to 401K

Post by pageskipro » Thu Jan 11, 2018 1:26 pm

Thank you both for this information. Considering a 401K for rollover after retirement is a very good option! It is also a good way to decide between the two options based on the tax debt increase and fund cost. Thank you!

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ruralavalon
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Re: Alternatives to 401K

Post by ruralavalon » Thu Jan 11, 2018 5:01 pm

Welcome to the forum :) .

pageskipro wrote:
Thu Jan 11, 2018 10:08 am
Hi, Thanks in advance for your ideas and help.

I have a state retirement plan (PERA) in Colorado. I am 60 years old so I can add 6.5K/year to a Roth IRA which I do and have with a Vanguard Target Retirement Fund. I would like to invest about 20K in addition and see I can do that with PERA and as a "catch up". I have the option of opening a 401K without any matching funds from my employer (since they are already matching the mandatory retirement deduction).
I would prefer not to do this with PERA because I am under the impression that they are not necessarily the best investment option.
Is there any other way to use this "catch up" feature to invest a chunk of money and have the tax advantage of the 401k?

Thanks again,

Cynthia
Does your employer offer a 401k plan (or any other work-based plan like a 403b, 457b)?

If so what funds are offered in that work-based plan? Please give fund names, tickers and expense ratios.

It is not possible to say if the plan is worth using without that information. Don't just rely on an "impression". Often new members feel a plan is bad, but when the funds are listed we find investments that are well worth using. You only need one or two decent funds in a work-based plan to make using the plan worthwhile.

You can simply add this to your original post using the edit button, so that all of your information is in one place.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

pageskipro
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Re: Alternatives to 401K

Post by pageskipro » Fri Jan 12, 2018 10:01 am

Thank you very much you are very comprehensive in your help. I will gather this info and post it. I was looking at the offerings yesterday and saw that they have target retirement mutual fund option which has done almost as well as my Vanguard target retirement fund. So I am definitely interested in learning more and your opinion would be instructive and helpful I am sure.

retiredjg
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Re: Alternatives to 401K

Post by retiredjg » Fri Jan 12, 2018 10:08 am

pageskipro wrote:
Thu Jan 11, 2018 10:08 am
I would prefer not to do this with PERA because I am under the impression that they are not necessarily the best investment option.
What is not necessarily the best investment option?

Are you worried about PERA being shaky? That should not be an issue because your 401k money is held in a safe place for you.

Or do you mean the 401k has poor choices to invest in? If that is what you think, let us help you find something worthwhile on their list. We need the name of the fund, ticker symbol if one is given, and the expense ratio specific to that 401k plan.

pageskipro
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Re: Alternatives to 401K

Post by pageskipro » Fri Jan 12, 2018 10:39 am

Yes, I am concerned about both of those, although I have no real knowledge of this happening. I did edit my original post as requested by ruralavalon, with my investment options for PERA (401k) and TIAA (403b). There is a lot of information on those links and if you would prefer a list of fund names, ticker abbreviation and fund cost I can put that together this weekend! Thank you

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ruralavalon
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Re: Alternatives to 401K

Post by ruralavalon » Fri Jan 12, 2018 11:22 am

pageskipro wrote:
Fri Jan 12, 2018 10:39 am
Yes, I am concerned about both of those, although I have no real knowledge of this happening. I did edit my original post as requested by ruralavalon, with my investment options for PERA (401k) and TIAA (403b). There is a lot of information on those links and if you would prefer a list of fund names, ticker abbreviation and fund cost I can put that together this weekend! Thank you
I have had a quick look at the links you gave for both the 401k and 403b plans, in general both offer some good funds to consider, with moderate expense ratios. I will have to take a more detailed look later.

Is there also a 457b plan offered?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

pageskipro
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Re: Alternatives to 401K

Post by pageskipro » Fri Jan 12, 2018 4:09 pm

Yes there is a 457 plan also!

quaternion
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Re: Alternatives to 401K

Post by quaternion » Fri Jan 12, 2018 5:19 pm

It looks like the Vanguard institutional funds in the TIAA 403(b) are your best option. These are less expensive than the funds offered through the PERA 401k and probably better than you could do with the brokerage windows at TIAA or the PERA 401k via TDAmeritrade.

Katietsu
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Re: Alternatives to 401K

Post by Katietsu » Fri Jan 12, 2018 5:43 pm

There is no additional tax savings with a 401k over a 403b in general. Both will have the same contribution limit, sometimes the 403b is higher. Both will reduce your income in the same way. Neither seems to have bad options. Are you dual employed that you have access to both a 401k and a 403b?

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ruralavalon
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Re: Alternatives to 401K

Post by ruralavalon » Fri Jan 12, 2018 6:50 pm

pageskipro wrote:
Thu Jan 11, 2018 10:08 am
Hi, Thanks in advance for your ideas and help.

I have a state retirement plan (PERA) in Colorado. I am 60 years old so I can add 6.5K/year to a Roth IRA which I do and have with a Vanguard Target Retirement Fund. I would like to invest about 20K in addition and see I can do that with PERA and as a "catch up". I have the option of opening a 401K without any matching funds from my employer (since they are already matching the mandatory retirement deduction).
I would prefer not to do this with PERA because I am under the impression that they are not necessarily the best investment option.
Is there any other way to use this "catch up" feature to invest a chunk of money and have the tax advantage of the 401k?

Thanks again,

Cynthia

Edited 011218, with fund choices.
Here is a link to my funding options with PERA 401k.
https://copera401k.voya.com/einfo/fundi ... c754db3faf

I also have the option of a 403b with TIAA that link is here
https://www.tiaa.org/public/tcm/cu/inve ... ions/plan2

I am leaning towards the 401K because of the additional tax savings. I am assuming I will actually drop down a tax bracket if I put the maximum in and still get my individual deduction of about 11k in 2018. I have the money to invest without docking my pay, but could try to live off of my reduced paycheck. It would be a reality check for retirement.

I am also assuming I can do the maximum for 401k - which I think is 24,500 for age 50+, and I can still do a Roth max of 6500. I am not sure if I will do both of these I might not be able to afford it so I might put 18,500 in 401 and 6500 into Roth. My Roth is Vanguard Target Retirement 2025 and I have put in 13,000 in the last 9 months.

Thanks!
I suggest that you use the 403b plan rather than the 401k, the funds offered are better with lower expense ratios. There are some excellent funds offered in your 403b plan.

You have Vanguard Target Retirement 2025 in your Roth IRA.

If you like the idea of target date funds, for a simple all-in-one portfolio requiring no management from you, then in the 403b you could simply use Vanguard Institutional Target Retirement 2025, expense ratio 0.09%, the same as in your Roth IRA.

If you want separate index funds then you could use these funds in the 403b:
Vanguard Institutional Index Fund (a S&P 500 index fund), expense ratio 0.04%
Vanguard Total International Stock Index Fund Institutional, expense ratio 0.09%
Vanguard Total Bond Market Index Fund Institutional, expense ratio 0.05%

At age 60 you are allowed to contribute $24.5k annually to your 403b and $6.5k annually to your Roth IRA.

Do you think you will be able to contribute more than that annually to investing?

If you have more money you can contribute annually to investing, then consider also using the 457b plan.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link:Getting Started

pageskipro
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Joined: Thu Jan 11, 2018 9:50 am

Re: Alternatives to 401K

Post by pageskipro » Fri Jan 12, 2018 8:51 pm

I suggest that you use the 403b plan rather than the 401k, the funds offered are better with lower expense ratios. There are some excellent funds offered in your 403b plan.

You have Vanguard Target Retirement 2025 in your Roth IRA.

If you like the idea of target date funds, for a simple all-in-one portfolio requiring no management from you, then in the 403b you could simply use Vanguard Institutional Target Retirement 2025, expense ratio 0.09%, the same as in your Roth IRA.

If you want separate index funds then you could use these funds in the 403b:
Vanguard Institutional Index Fund (a S&P 500 index fund), expense ratio 0.04%
Vanguard Total International Stock Index Fund Institutional, expense ratio 0.09%
Vanguard Total Bond Market Index Fund Institutional, expense ratio 0.05%

At age 60 you are allowed to contribute $24.5k annually to your 403b and $6.5k annually to your Roth IRA.

Do you think you will be able to contribute more than that annually to investing?

If you have more money you can contribute annually to investing, then consider also using the 457b plan.
Thanks so much for looking into this for me. I have already learned a ton just by answering your questions. One of the more humorous things is that TIAA offers Vanquard and the same Target fund I currently have at a lower expense ratio than I have gotten on my own :|

I am going to do this pre-tax contribution and try to see how little I can live off of. Within reason of course :greedy, I do love shoes.



Cheers,

pageskipro
Posts: 8
Joined: Thu Jan 11, 2018 9:50 am

Re: Alternatives to 401K

Post by pageskipro » Fri Jan 12, 2018 9:03 pm

There is no additional tax savings with a 401k over a 403b in general. Both will have the same contribution limit, sometimes the 403b is higher. Both will reduce your income in the same way. Neither seems to have bad options. Are you dual employed that you have access to both a 401k and a 403b?
Actually, I am not positive, I think I have access to the 403b from TIAA. This is an alternative to the PERA for people I work with who don't have Pera. I am one of the few that actually has Pera. Most employees that I work with don't have it. I was in the PERA system from a previous employer when I was hired here. They were taking out a certain amount of my money and matching that, each month and I didn't even realize the significance until I got close to retirement age! Hard to believe, eh.

I have TIAA from another employer and have spoken to reps here. I will ask our benefit people if I am eligible for the 403b, I may not be but if that is the case I will go with the 401k (or 457).

Thanks very much for your help!

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