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401(k) vs 403b question
Old 02-08-2013, 01:42 PM   #1
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401(k) vs 403b question

Hello

New to the forum, but have been folowing for awhile and learning quite alot.

After reading about 401(k) expenses on a post, I decided to take a closer look at my wife's 401(k) from Principal. I found the fund expenses to be quite high (.7% was the lowest...most over 1%), but what floored me was the "fees" on the account which are an additional 1.4% of the balance yearly! These are deduced every 3 months based on the balance. Last statement was over $66 for the last 3 months and obviosly growing with each new deposit. This seems extreemly high or maybe this is common?

In contrast, my 403b with Fidelity has a very low maintenance fee and very good low expense options.

Here is my question: We currently do 20% of salary in each account. I have no match, and my wife gets a 4% of salary match. Would it make sense to only put the minimum in wifes 401(k) to achieve match and raise my amount to make up the difference?

My concern is if there are any different rules for 401(k) vs 403b which may effect my decision and also if it is a bad idea to have the bulk of retirement savings going into my 403b and a small amount to her 401(k)

By the way, I am 51 and wife is 50. Thanks for any advice.
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Old 02-08-2013, 01:56 PM   #2
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Hi Cincy,

You are right on. A 403b and 401k have virtually the same features and benefits. If you aren't maximizing them both then you should max up to the employer match on the more expensive one and increase the low cost one to make up for the other. The other thing you can do if you want to really work down the fees if choose the lowest cost funds (such as an S&P 500 index fund, stable value fund, etc.) in the more costly plan and then complement those investments with other sectors (international, real estate, etc.) in the lower cost plan.
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Old 02-08-2013, 03:09 PM   #3
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The fees and expenses probably have much more to do with the arrangement between employer and financial institution than 401 vs. 403.

Read the summary plan description carefully and see if you can do a rollover from the high cost plan to an IRA to reduce the ongoing fees. Again, the ability to do a rollover will be determined by the employer/financial institution arrangement.

When mega corp spun off the unit I work for, our new 401k was nearly identical to the mega corp 401k except the new plan did NOT permit rollovers.....both plans were with Fidelity.

I am curious to know how deep you had to dig to uncover the fees.
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Old 02-08-2013, 03:14 PM   #4
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I would shift as much as you can to the cheaper plan. Might even consider just the minimum to get the full match in the 401k and put any remaining overflow into a taxable account. That balance fee is way over the line. Ultimately however, you need to do a spreadsheet calc and see if it kills the 401k gains enough to abandon it.
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Old 02-08-2013, 03:22 PM   #5
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You really need to consider your plans. Are you planning to retire prior to 591/2? Withdrawal options after 55 can vary significantly between plans. For example some allow partial withdrawals after 55 with no early 10% penalty while others may require you to withdraw the entire account or roll it over to an IRA. However if you roll it over to an IRA you can not withdraw prior to 591/2 without the 10% early penalty.

There are other variables as well. Be sure to get all the facts before you act.
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Old 02-08-2013, 03:48 PM   #6
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Quote:
Originally Posted by jazz4cash View Post
The fees and expenses probably have much more to do with the arrangement between employer and financial institution than 401 vs. 403.
Exactly the case.
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Old 02-08-2013, 04:14 PM   #7
Confused about dryer sheets
 
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Thanks for the responses.

In response to the question concerning how deep I had to dig to find the fees, they were not listed separately but included with the "gain/loss" amount on quarterly statement. Here is the "small print" concerning this:

"Gain/Loss reflects investment performance, taking into account the timing and amount of deposits and/or withdrawals. It also reflects plan fees that in certain instances may be taken from participant accounts."


I called Principal and the refereed me to the ERISA documement on the account which says the following:

"The remaining Plan administrative expenses of 1.40 percent apply to each participant's account balance. One twelfth of this annual amount will be
charged on a monthly basis. The dollar amount of the expense can be found by logging in to the secure website at
principal.com and on participant statements. Plan administrative expenses typically include items such as recordkeeping,
participant website access, participant statements, Plan compliance services and financial professional services"


I consider myself pretty financially savy and it took me almost a year to discover this. Well, live and learn! Obviously we are going to scale back to minimum to get match and send future contributions to my 403b. Removing any existing funds was not allowed until she leaves employment so we are stuck paying on the remaining balance!
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Old 02-08-2013, 04:26 PM   #8
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Quote:
Originally Posted by Cincy View Post
I consider myself pretty financially savy and it took me almost a year to discover this.
Thanks........I had a feeling this info was buried in the disclosures someplace that required some diligence to uncover.

I consider our plan to be very low cost and employee-freindly. For example, our proprietary S&P 500 index fund outperforms Vanguard's by the exact difference in the expense ratios.

Again, check into the provisions for doing a rollover from the high cost plan to a lower cost IRA.
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