Wife's 457B options

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BobStrauss
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Wife's 457B options

Post by BobStrauss »

UPDATED ORIGINAL POST: Wife just switched jobs, to a governmental nursing position, and her new retirement plan options are Voya 403B or Voya 457B, the latter which after one year gets a whopping 1% match (if she puts in 4%). Breezing through the plan options on her intranet (makes it hard to post detailed information on each), it seems that her plan options have higher expense ratios than her previous workplace. :thumbsdown But as pointed out by posters below, there are some options that are indeed reasonably priced.

Wondering best approach for us. I'm 38, wife is 33, we have two kids (one almost 4 and one 18 months) and we live in Texas with combined income of ~ $165k. I'm a fed employee currently putting $20.5k (plus 5% match) into traditional TSP (L2055), maxing HSA (not invested yet), no IRAs currently. Due to student loan IBR/PSLF strategy we are filing separately and doing as many pre-tax deductions as possible. Reason being: that loan payment would be well over $1,000 monthly if filing jointly and not minimizing taxable income. Currently it's ~ $125 (though still $0 currently due to COVID/politics). Current plan is to shift to post-tax (Roth TSP for me and perhaps Roth IRA also) in about 18 months once PSLF terms are met.

Now understood that TIRA is not an option as we don't qualify. Still trying to determine wife's governmental/non-governmental status, as she's kind of in a grey zone wrt employer. Fund options (those w/the most reasonable expense ratios) are as follows:

Voya Government Money Market Portfolio - Class I (IVMXX) - 0.51%

American Century Investments® Inflation-Adjusted Bond Fund - Investor Class (ACITX) - 0.47%

Voya Intermediate Bond Portfolio - Class I (IPIIX) - 0.60%

Voya Index Solution 2055 Portfolio - Initial Class - 0.54%

Voya Index Solution 2045 Portfolio - Initial Class - 0.47%

Voya Russell™ Large Cap Index Portfolio - Class I (IIRLX) - 0.44%

Fidelity® VIP Contrafund® Portfolio - Initial Class - 0.61%

Voya Russell™ Mid Cap Index Portfolio - Class I (IIRMX) - 0.55%

Voya Russel™ Small Cap Index Portfolio - Class I (IIRSX) - 0.55%

Voya International Index Portfolio - Class I (IIIIX) - 0.54%

Would prefer an allocation that is equity-heavy given our circumstances - one I can set and revisit when I hit 50 or so. Any advice or suggestions are much appreciated.
Last edited by BobStrauss on Tue May 24, 2022 11:13 am, edited 2 times in total.
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FiveK
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Re: Wife's 403B/457 options vs traditional IRAs

Post by FiveK »

The Voya fees would have to be truly egregious, and she would have to expect to stay with the new employer for a long time, to overcome the benefit of the match.

A little spreadsheet work can show this. E.g., look at $2K earning 5%/yr vs. $2.5K earning 4%/yr (in other words, adding the 1% match to a 4% contribution on a $50K salary, then paying a 1%/yr higher investment fee). It takes a little over 23 years for the match+high-fee to be worse than no-match+low-fee.

But Voya's fees could be egregious. How bad are they?
Harmanic
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Re: Wife's 403B/457 options vs traditional IRAs

Post by Harmanic »

FiveK wrote: Thu May 19, 2022 8:38 pm The Voya fees would have to be truly egregious, and she would have to expect to stay with the new employer for a long time, to overcome the benefit of the match.

A little spreadsheet work can show this. E.g., look at $2K earning 5%/yr vs. $2.5K earning 4%/yr (in other words, adding the 1% match to a 4% contribution on a $50K salary, then paying a 1%/yr higher investment fee). It takes a little over 23 years for the match+high-fee to be worse than no-match+low-fee.

But Voya's fees could be egregious. How bad are they?
There are several city and state governments that have Voya. The fees I am seeing are all under 0.5%. Not horrible. Certainly under the maximum fee recommended by Jack Bogle.

Of course, each employer is going to have different options with Voya acting as plan administrator. So fees could be higher or lower, but I can't imagine a plan without at least some low cost options.

Here is one from the city of LA. https://la457.voya.com/static/epweb/pdf/ffs/GXAE.PDF

Top 10 Holdings as of 12-31-21 % Assets
Vanguard Institutional Index Instl Pl 25.00
MFS Instl International Equity 22.10
Loomis Sayles Core Plus Bond Y 12.50
Vanguard Total Bond Market Idx InstlPls 12.50
Brandes International Small Cap Equity I 5.95
.......................................................................................................
DFA Emerging Markets Core Equity I 5.95
Vanguard Mid Cap Index InstitutionalPlus 4.00
Vanguard Small Cap Index InstlPlus 2.72
DFA US Small Cap Value I 2.64
Hartford Small Cap Growth HLS IB 2.64
.......................................................................................................
Total Number of Holdings 12
Annual Turnover Ratio % .
Total Fund Assets ($mil) 585.9


Expense Ratio
0.38%
Management Team
Various
The question isn't at what age I want to retire, it's at what income. | - George Foreman
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FiveK
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Re: Wife's 403B/457 options vs traditional IRAs

Post by FiveK »

Harmanic wrote: Thu May 19, 2022 8:48 pmThe fees I am seeing are all under 0.5%.
That would strengthen the argument to take the match. At an excess fee of 0.5%, it would take ~47 years for that fee drag (assuming a 5%/yr return for the same investment in an IRA) to overcome the 1%/4% = 25% match rate. Lower fees (e.g., the 0.38% example) would take even longer.
tashnewbie
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Re: Wife's 403B/457 options vs traditional IRAs

Post by tashnewbie »

1. Echoing what others have said, it's generally always a good idea to capture full employer match, unless plan fees are truly horrendous.

2. What are the 403b/457 fund and plan fees?

3. Can you deduct Traditional IRA contributions? Are you filing MFJ or MFS? Look at this IRS page for more information about deductibility of TIRA contributions: link -- the limits vary depending on whether you're "covered" by a workplace plan such as 403b/457/401k. If you can't deduct them, then that's not an option to reduce your taxable income.
mega317
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Re: Wife's 403B/457 options vs traditional IRAs

Post by mega317 »

Also see here, there is some math around expensive plans. https://www.bogleheads.org/wiki/401(k)

I would not think of this as being strong armed into anything. You don’t have to take the match; no one (except maybe the Bogleheads) will come after you.
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Duckie
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Re: Wife's 403B/457 options vs traditional IRAs

Post by Duckie »

BobStrauss wrote: Thu May 19, 2022 8:03 pm Wife just switched jobs, and new retirement plan options are Voya 403B or Voya 457, the latter which after one year gets a whopping 1% match (if she puts in 4%).
Is the 457b plan governmental or non-governmental? It makes a big difference.
Topic Author
BobStrauss
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Re: Wife's 403B/457 options vs traditional IRAs

Post by BobStrauss »

Thanks everyone! And yes, saying I was strong-armed and annoyed with fees that really aren’t awful wasn’t right. That’s what I get for being under the weather and grumpy while posting I guess.

Not sure whether it’s governmental or not - it’s a state funded nurse case management position with a non-profit under the umbrella of a university. A grey area I may need to sort out. But (and thanks tashnewbie!) the TIRA isn’t an option anyway cause we aren’t eligible. I’m on a hot streak of dumb thoughts here.

I’m now thinking to max the TSP and do remainder in her 457? I’ll try to dig up info on the options soon.
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ruralavalon
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Re: Wife's 403B/457 options vs traditional IRAs

Post by ruralavalon »

Please simply add any new information to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

What are your ages?

What is your tax bracket, both federal and state? What is your tax filing status?


BobStrauss wrote: Fri May 20, 2022 5:59 pm Thanks everyone! And yes, saying I was strong-armed and annoyed with fees that really aren’t awful wasn’t right. That’s what I get for being under the weather and grumpy while posting I guess.
Definitely contribute at least enough to get the full employer match, perhaps more.

"The fees I am seeing are all under 0.5%." Expense ratios under 0.50% indicates useable funds, even without an employer match. "I’ll try to dig up info on the options soon." Please give fund names, tickers and expense ratios. Are there any fees charged the plan participants in addition to the expense ratios?

BobStrauss wrote: Fri May 20, 2022 5:59 pmNot sure whether it’s governmental or not - it’s a state funded nurse case management position with a non-profit under the umbrella of a university. A grey area I may need to sort out. But (and thanks tashnewbie!) the TIRA isn’t an option anyway cause we aren’t eligible. I’m on a hot streak of dumb thoughts here.
Which entity pays her paycheck? Is that a state university? "[N]urse case management position with a non-profit" sounds like she has a non-governmental employer.

If her employer is non-governmental then use the 403b not the 457b. "457 plan assets are the property of the sponsoring employer and are subject to the employer's general creditors, until paid out to plan participants." "Non-government 457 plans can only be rolled over to another non government 457 plan." Also different withdrawal rules apply if you work for a tax-exempt organization (you must see the employer plan document for the details.)

Wiki article 457(b).

Are you eligible to contribute to Roth IRAs? IRS, "Amount of Roth IRA Contributions That You Can Make for 2022", link.

BobStrauss wrote: Fri May 20, 2022 5:59 pmI’m now thinking to max the TSP and do remainder in her 457? I’ll try to dig up info on the options soon.
Yes, you should make the maximum annual employee contribution ($20.5k if under age 50; $27k if over age 50) to the Thrift Savings Plan (TSP) account as the first priority.

The next priority would be Roth IRAs or 403b or 457b depending.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
BobStrauss
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Re: Wife's 403B/457 options vs traditional IRAs

Post by BobStrauss »

Bump - fund options plus additional background info added to the original post.
Doc7
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Re: Wife's 403B/457 options vs traditional IRAs

Post by Doc7 »

ruralavalon wrote: Sat May 21, 2022 1:08 pm Please simply add any new information to your original post using the edit button (the pencil icon near the upper right corner of your post), it helps a lot if all of your information is in one place.

What are your ages?

What is your tax bracket, both federal and state? What is your tax filing status?


BobStrauss wrote: Fri May 20, 2022 5:59 pm Thanks everyone! And yes, saying I was strong-armed and annoyed with fees that really aren’t awful wasn’t right. That’s what I get for being under the weather and grumpy while posting I guess.
Definitely contribute at least enough to get the full employer match, perhaps more.

"The fees I am seeing are all under 0.5%." Expense ratios under 0.50% indicates useable funds, even without an employer match. "I’ll try to dig up info on the options soon." Please give fund names, tickers and expense ratios. Are there any fees charged the plan participants in addition to the expense ratios?

BobStrauss wrote: Fri May 20, 2022 5:59 pmNot sure whether it’s governmental or not - it’s a state funded nurse case management position with a non-profit under the umbrella of a university. A grey area I may need to sort out. But (and thanks tashnewbie!) the TIRA isn’t an option anyway cause we aren’t eligible. I’m on a hot streak of dumb thoughts here.
Which entity pays her paycheck? Is that a state university? "[N]urse case management position with a non-profit" sounds like she has a non-governmental employer.

If her employer is non-governmental then use the 403b not the 457b. "457 plan assets are the property of the sponsoring employer and are subject to the employer's general creditors, until paid out to plan participants." "Non-government 457 plans can only be rolled over to another non government 457 plan." Also different withdrawal rules apply if you work for a tax-exempt organization (you must see the employer plan document for the details.)

Wiki article 457(b).

Are you eligible to contribute to Roth IRAs? IRS, "Amount of Roth IRA Contributions That You Can Make for 2022", link.

BobStrauss wrote: Fri May 20, 2022 5:59 pmI’m now thinking to max the TSP and do remainder in her 457? I’ll try to dig up info on the options soon.
Yes, you should make the maximum annual employee contribution ($20.5k if under age 50; $27k if over age 50) to the Thrift Savings Plan (TSP) account as the first priority.

The next priority would be Roth IRAs or 403b or 457b depending.


How does one know if their plan is “governmental “? Can I assume that someone working for a flagship public state university and is in the “Virginia Retirement System” that is a governmental 457?
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ruralavalon
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Re: Wife's 403B/457 options vs traditional IRAs

Post by ruralavalon »

Doc7 wrote: Tue May 24, 2022 10:21 amHow does one know if their plan is “governmental “? Can I assume that someone working for a flagship public state university and is in the “Virginia Retirement System” that is a governmental 457?
Yes, that would be a governmental 457b.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
BobStrauss
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Re: Wife's 457B options

Post by BobStrauss »

We also just confirmed that my wife's position is "governmental," which is now added to the original post also.
tashnewbie
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Re: Wife's 457B options

Post by tashnewbie »

BobStrauss wrote: Thu May 19, 2022 8:03 pm Voya Russell™ Large Cap Index Portfolio - Class I (IIRLX) - 0.44%
I would definitely contribute to her governmental 457, at least enough to capture the full match, but probably as much as you can afford.

I would probably just put everything in the fund above. It's the cheapest option you provided, it's a large cap blend index fund, and it has tracked broad market index funds like VTSAX well in the past (may not continue in the future). You could also use a target date fund - it'll have a mix of stocks and bonds and will have an asset allocation glidepath (will become more conservative as it gets closer to the target date).

If you're trying to reduce your taxable income as much as reasonably possible to reduce IBR payments, then this is what I'd do:

1) His TSP, to the match
2) Her 457, to the match
3) His TSP, max
4) Her 457, max
5) Roth IRAs

After the student loans are gone, then it might make sense to fund the Roth IRAs before maxing her 457.
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ruralavalon
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Re: Wife's 457B options

Post by ruralavalon »

BobStrauss wrote: Thu May 19, 2022 8:03 pmWould prefer an allocation that is equity-heavy given our circumstances - one I can set and revisit when I hit 50 or so. Any advice or suggestions are much appreciated.
Is there a Stable Value Fund or Guaranteed Income Fund offered in the 403b or 457b plan? If so what interest rate is currently being paid, and what rate if any is guaranteed?

One of the target date funds would be a good choice in my opinion.

Using an allocation fund seems to inoculate the investor against behavioral errors and so produce higher investor returns. Morningstar Mind the Gap 2019.

If you want separate funds instead, then my suggestion is a combination of:
1) Voya Russell™ Large Cap Index Portfolio - Class I (Russell Top 200® Index) (IIRLX) - 0.44%;
2) Voya International Index Portfolio - Class I (MSCI EAFE® Index, developed markets only) (IIIIX) - 0.54%; and
3) Voya Intermediate Bond Portfolio - Class I (intermediate-term, investment-grade bonds) (IPIIX) - 0.60% (or a Stable Value Fund or Guaranteed Income Fund if a good rate is paid).

I suggest maximum annual employee contributions ($20.5k) to your TSP account as the top priority.

I also suggest making the maximum annual employee contribution ($20.5k) to the 403b or 457b if that's affordable for you.

For what it's worth, she is allowed to contribute the maximum to both plans.

IRS, How Much Salary Can You Defer if You’re Eligible for More than One Retirement Plan?
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
Topic Author
BobStrauss
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Re: Wife's 457B options

Post by BobStrauss »

This fund on offer may be the stable value one you’re referring to: https://www.voyaretirementplans.com/fun ... r/4020.pdf

However, I don’t see any specifics on it other than what’s listed on that page.

Perhaps my wife’s contributions could be 100% in the Russell Large Cap Index (IIRLX) and I shift my TSP to a more conservative lifecycle fund - 2045 maybe? Would that still offer somewhat of a glide path while giving us extra weight in equities? Current balances are ~ 220k TSP, 130k her old 401k.
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ruralavalon
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Re: Wife's 457B options

Post by ruralavalon »

BobStrauss wrote: Tue May 24, 2022 3:34 pm This fund on offer may be the stable value one you’re referring to: https://www.voyaretirementplans.com/fun ... r/4020.pdf

However, I don’t see any specifics on it other than what’s listed on that page.

Perhaps my wife’s contributions could be 100% in the Russell Large Cap Index (IIRLX) and I shift my TSP to a more conservative lifecycle fund - 2045 maybe? Would that still offer somewhat of a glide path while giving us extra weight in equities? Current balances are ~ 220k TSP, 130k her old 401k.
What return has been recently paid by Voya Fixed Plus Account III?

What does she use in her old employer's 401k?

In my opinion using one of the target date funds (Voya Index Solution 2055 Portfolio - Initial Class - 0.54%, Voya Index Solution 2045 Portfolio - Initial Class - 0.47%) would be simpler and not much higher expense.
"Everything should be as simple as it is, but not simpler." - Albert Einstein | Wiki article link: Bogleheads® investment philosophy
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