Max contribute 403b without match?

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Topic Author
RobLyons
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Joined: Tue Oct 31, 2017 12:55 pm

Max contribute 403b without match?

Post by RobLyons »

My question is should I max contribute to our 403b which does not offer a match? Or is it OK to continue on my current plan of: Max contribute to our Roths and 10% 403b with a good pension which of course isn't guaranteed besides current funds in it. We are a little light on total retirement funds due to I pulled out my old 401k to buy our home with 20% down about 8 years ago. So I feel I've done well going from $0 to $170k retirement funds in 8 years while paying $45k high interest debt on a mainly 1 income family. I'd rather not max contribute and use some funds to enjoy some old hobbies. Thoughts?

Briefly, we are

Family: late 30s couple, mainly 1 income family. Wife works 2 days/week, with 2 youngins, one is homeschooled, the other is remote learning. No plans for DW to go back to working full time, focused on children and low stress life. I work full time 3 - 12hr shifts, plus 2-3 shifts per months at another job that I easily handle.
Tax Bracket: 12%
Emergency Fund: 9 month EF
Retirement About $170k total, max contribute his and her Roth IRAs, 10% 403b, all in Bogleheads style
Real estate: 1 family house worth $525k
Debt: $218k mortgage, $15k low interest debt ($6,500 at 1.60% auto, $5k @ 0% home improvement loan through state, $3400 0% credit card) that I'm fine with leveraging
Life insurance: 9x salary from employer, supplemental $500k from private company I pay $300/year out of pocket
College savings: minimal college funds started, however my intention is to assist both kids with a reasonable, inexpensive education plan which would not be Ivy League or big university but more community college or state college, trade school, etc.


I've been active on the boards and browsed the wiki and BH articles but haven't found an answer to my question yet. I would like to know thoughts and opinions on me max contributing my 403b which offers no employer match due to my employer funded pension (funded 100% by employer). I've never been financially able to max contribute all retirement plans in the past and now I may be able to, but I'm currently focused on the IRAs and I contribute 10% to the 403b. Also I'm very interested in returning to some of my old passions/past times which require some money.

Thanks for any and all feedback.
Last edited by RobLyons on Sat Oct 17, 2020 9:59 am, edited 2 times in total.
"Great parenting sets the foundation for a better world"
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MillennialFinance19
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Re: Max contribute 403b without match?

Post by MillennialFinance19 »

We max contribute to my wife’s 457(b) with no match and are working toward the max for the 403(b), also. You’re already in the 12% bracket, so you wouldn’t have large tax savings by doing so. I think your 10% is pretty sound considering you’re also using Roth IRAs. Maybe push to 15% as a happy medium?

Who runs the plan? Are the fees low? Good fund options? The answers to those questions play a big role in this.
For the love of God, stick to your plan!!!
Spirit Rider
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Joined: Fri Mar 02, 2007 2:39 pm

Re: Max contribute 403b without match?

Post by Spirit Rider »

With the pension it really comes down to a projection of your pension, SS and portfolio withdrawal rate in retirement and your personal choices.

Also, it doesn't have to be a binary decision. Instead of going straight to maxing it out. You could use 1/2 of any raises to increase the contribution percentage or you could increase it by 1% - 2% or some other percentage/year.
Nate7out
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Joined: Wed Jan 16, 2008 2:06 pm

Re: Max contribute 403b without match?

Post by Nate7out »

Need to know income, expenses, and 403b options (expenses/fees).

Is it realistic to spend more on hobbies with 2 young children? Will wife resent that (perhaps the time is even more in short supply than money)? I have boys 5 and 4, hobbies are mostly on hold. If you are in 12% bracket, there might be a large difference between 10% contributions and maxing - seems like a lot to spend on hobbies.
Topic Author
RobLyons
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Joined: Tue Oct 31, 2017 12:55 pm

Re: Max contribute 403b without match?

Post by RobLyons »

MillennialFinance19 wrote: Sat Oct 17, 2020 7:08 am We max contribute to my wife’s 457(b) with no match and are working toward the max for the 403(b), also. You’re already in the 12% bracket, so you wouldn’t have large tax savings by doing so. I think your 10% is pretty sound considering you’re also using Roth IRAs. Maybe push to 15% as a happy medium?

Who runs the plan? Are the fees low? Good fund options? The answers to those questions play a big role in this.

Fidelity runs the plan

Good options and low fees. I'm currently in
Name - Expense ratio
VINIX 0.035%
VTRLX 0.09%
WFBIX 0.06%
VTSNX 0.08%
"Great parenting sets the foundation for a better world"
Topic Author
RobLyons
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Joined: Tue Oct 31, 2017 12:55 pm

Re: Max contribute 403b without match?

Post by RobLyons »

Nate7out wrote: Sat Oct 17, 2020 7:14 am Need to know income
Fluctuates between $80-$100k, expenses, and 403b options (expenses/fees)


VANG INST TR 2015 (VITVX)
Blended Investments*
VANG INST TR 2020 (VITWX)
VANG INST TR 2025 (VRIVX)
VANG INST TR 2030 (VTTWX)
VANG INST TR 2035 (VITFX)
VANG INST TR 2040 (VIRSX)
VANG INST TR 2045 (VITLX)
VANG INST TR 2050 (VTRLX)
VANG INST TR 2055 (VIVLX)
VANG INST TR 2060 (VILVX)
VANG INST TR 2065 (VSXFX)
VANG INST TR INCOME (VITRX)

-- All above have an expense ratio of 0.09% --

TIER TWO: GUIDED CHOICE
ARTISAN GLBL VAL IS (APHGX) - 1.04% exp ratio
VANG EXT MKT IDX INS (VIEIX) - 0.05%
VANG TOT INTL STK IS (VTSNX) - 0.08%
VANGUARD INST INDEX (VINIX) - 0.035% (This is about 45% of my 403b portfolio)
JPM GLOBAL ALLOC R6 (GAOZX) - 0.72%
IS ST TIPS BD IDX K (BKIPX) - 0.06%
IS US AGG BD IDX K (WFBIX) - 0.05%
PIM GL ADV STR BD IS (PSAIX) - 0.86%
VANG VMMR-FED MMKT (VMFXX) - 0.11%

TIER THREE: OPEN CHOICE - show details.- hide details.
BROKERAGELINK

.

Is it realistic to spend more on hobbies with 2 young children?
--> Maybe! I find kids are not expensive, it's the decisions we make as parents which increase/decrease expenses greatly. And I'm talking a few thousand for one hobby, and the more expensive hobby would be about $10k, one time in the future.

Will wife resent that (perhaps the time is even more in short supply than money)? I have boys 5 and 4, hobbies are mostly on hold. If you are in 12% bracket, there might be a large difference between 10% contributions and maxing - seems like a lot to spend on hobbies.

Thanks for your honest feedback! My kids are older - 8 and 11 so it feels like we got past that initial expensive hump by getting hand me downs, using coupons, and minimizing expensive toys and teaching the kids about the cost of the toys they want ! Best of luck my friend.
"Great parenting sets the foundation for a better world"
Topic Author
RobLyons
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Re: Max contribute 403b without match?

Post by RobLyons »

Edit: We have about a 9-10 month EF, not 6 month.
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Nate7out
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Joined: Wed Jan 16, 2008 2:06 pm

Re: Max contribute 403b without match?

Post by Nate7out »

Is the 403b set to 10% of income from the main FT job (~$8k) or 10% of expected gross (~$10k)? Maxing 403b is close to 20% of gross.

My thoughts:
1) I would look at expected pension amount and timing vs. tax brackets. If it looks like you will have some years with space in the 12% [to be 15%] tax bracket between retirement and taking social security; then the traditional balance will be beneficial for Roth conversions. If the pension is above the 12% bracket, it will crowd you out of the low tax brackets and you will pay more taxes coming out than you saved going in. In that case choose Roth 403b if possible. Consider state tax treatment as well.

2) I would like to have diversification between tax treatment and generally would put $12k in Roth IRAs and $12k in Trad 403b. Then focus on increasing contributions with every raise until you are maxing.
terran
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Joined: Sat Jan 10, 2015 10:50 pm

Re: Max contribute 403b without match?

Post by terran »

You have great investment options in the 4013(b), so I certainly wouldn't be opposed to putting more in it.

Are you deciding between investing in the 403(b) or investing in a taxable account? In that case, take a look at what tax bracket you're in now vs what tax bracket you expect to be in when you retire considering expected pension and social security. If you're in a higher tax bracket now then definitely put more in the 403(b). If you'll be in the same bracket I'd probably still go with the 403(b) to avoid the tax drag you'll pay on dividends in taxable along the way. If you'll be in a higher tax bracket, then probably better to invest in taxable. If you have a Roth 403(b) available then it's a no-brainer, you should definitely invest in a Roth 403(b) with good investment options before a taxable account IMO.

Or are you deciding between investing in the 403(b) or spending the money? In that case it all comes down to whether you can meet your goals if you don't invest it. These are some rhetorical questions to ask yourself that you can answer here if you want more help, or keep to yourself if they help you answer the question. At what age are you eligible for the pension and are you interested in working until then? How much of your spending will the pension cover? How confident are you that the pension will remain solvent and payout in its current form for the rest of your life? Will the pension cover your wife if you predecease her both before and after retirement and what does that do to payout? If you're confident that the pension will provide the retirement you want then you don't need to save more, if not then you do and you're back to the question of where to invest.

Remember to account for the lifestyle inflation of spending more instead of saving it. If the pension is enough to cover desired expenses now, but then you start spending more instead of saving you'll both decrease the amount available to spend and increase the amount you want to spend. Hitting the right balance is the trick.
Topic Author
RobLyons
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Joined: Tue Oct 31, 2017 12:55 pm

Re: Max contribute 403b without match?

Post by RobLyons »

Nate7out wrote: Sat Oct 17, 2020 8:00 am Is the 403b set to 10% of income from the main FT job (~$8k) or 10% of expected gross (~$10k)? Maxing 403b is close to 20% of gross.

My thoughts:
1) I would look at expected pension amount and timing vs. tax brackets. If it looks like you will have some years with space in the 12% [to be 15%] tax bracket between retirement and taking social security; then the traditional balance will be beneficial for Roth conversions. If the pension is above the 12% bracket, it will crowd you out of the low tax brackets and you will pay more taxes coming out than you saved going in. In that case choose Roth 403b if possible. Consider state tax treatment as well.

2) I would like to have diversification between tax treatment and generally would put $12k in Roth IRAs and $12k in Trad 403b. Then focus on increasing contributions with every raise until you are maxing.

The pension is where the math gets a little more tricky, as there's almost too many variables to predict with any certainty how much I will have.
And there's variables on both my employer side and employee side.

1) Will my employer continue to fund the pension at same amount?
----Current structure ranges from 5-15% based on years of service + age, I'm in the 8%

2) Will the guaranteed returns in the pension plan stay the same?
----Currently guaranteed 5% annual returns (down from 6%)

Will I take lump sum, or one of several pay out options depending on "surviving spouse" payments (In exchange for receiving a reduced monthly benefit paid during my lifetime, I can have 50%, 66 2/3%, 75% or 100% of my monthly benefit continued after my death to beneficiary)

Will I continue with same employer? Will I retire early..


Using the pension calculator, assuming 2% annual raises, 10% contribution, and 5% guaranteed growth, retirement pay is estimated to be 118% of my current pay at age 65. 20% contribution puts me at 140% of my pay. I don't plan to live a luxurious lifestyle after retirement, probably somewhat frugal and with no kids or house to pay for I'm thinking this is way more than we will need. I'm starting to think contributing the same 10% or less will be fine.
"Great parenting sets the foundation for a better world"
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Max contribute 403b without match?

Post by KlangFool »

RobLyons wrote: Sat Oct 17, 2020 9:54 am
I'm starting to think contributing the same 10% or less will be fine.
RobLyons,

Let me throw a curveball to you.


A) Max up and/or increase your 403B contribution.


B) Use the 12% tax savings to help fund college education.


C) When the kids go to college, use the Roth IRA's contribution and/or reduce 403B contribution to fund the college education.


Do not think of the 403B as a retirement account. It is a tax-advantaged account.

Money is fungible.


KlangFool
Topic Author
RobLyons
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Joined: Tue Oct 31, 2017 12:55 pm

Re: Max contribute 403b without match?

Post by RobLyons »

KlangFool wrote: Sat Oct 17, 2020 10:03 am
RobLyons wrote: Sat Oct 17, 2020 9:54 am
I'm starting to think contributing the same 10% or less will be fine.
RobLyons,

Let me throw a curveball to you.


A) Max up and/or increase your 403B contribution.


B) Use the 12% tax savings to help fund college education.


C) When the kids go to college, use the Roth IRA's contribution and/or reduce 403B contribution to fund the college education.


Do not think of the 403B as a retirement account. It is a tax-advantaged account.

Money is fungible.


KlangFool

KlangFool you always have excellent advice. This could absolutely work as well. I'll consider this and I think overall I was looking for someone to tell me it's OK to fund my past times rather than doubling down and investing more. I'm almost 40 and with back issues already I don't know how much longer I will be able to enjoy the things I want to do... Best part of my past time (older muscle cars) is that they don't usually lose too much money! So I can probably do both. Hopefully. Take care!
"Great parenting sets the foundation for a better world"
KlangFool
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Joined: Sat Oct 11, 2008 12:35 pm

Re: Max contribute 403b without match?

Post by KlangFool »

RobLyons wrote: Sat Oct 17, 2020 3:42 pm

KlangFool you always have excellent advice. This could absolutely work as well. I'll consider this and I think overall I was looking for someone to tell me it's OK to fund my past times rather than doubling down and investing more. I'm almost 40 and with back issues already I don't know how much longer I will be able to enjoy the things I want to do... Best part of my past time (older muscle cars) is that they don't usually lose too much money! So I can probably do both. Hopefully. Take care!
RobLyons,

<<I was looking for someone to tell me it's OK to fund my past times rather than doubling down and investing more. >>


1) I save 1 year of expense every year. Then, I spend the rest.


2) With a reasonably inexpensive house, I could spend 50K to 60K per year and do whatever I wanted.


3) To each its own, pick your own answer with a balance between saving and spending.

The bottom line is if you are paying for a college education, use the tax savings to reach your goal.

KlangFool
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