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Old 11-01-2007, 12:28 PM   #1
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Next steps for me...

Ok,
Soooo...i've nearly maxed out my 403b (must be some lame psych reason i haven't - only off by like $50 a check) and started my Roth. yay for me.

Questions:

*Should I max my 403b next year w/ any raise/bonus - OR - put it in after tax investment (more mutual funds? what are other options?).

*Suzie on Oprah said something about Roth being better than 401k and only invest up to your match - but to me it seems the tax benefits don't match (and i recall some of you saying the same thing when i complained about the fees before)? However, my 403b stinks w/ the 1.2 annuity fee on top of each funds fees (about .4-.9 each).

Anyhow, that point is a little moot, since i will max the Roth, so i'm asking what to do with the raise/ bonus - which i'd usually split and put half in my 403b and the rest in my savings. Since i'm almost maxed out, i need new options.

What say ye?
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Old 11-01-2007, 12:31 PM   #2
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So, can you max out your Roth and max out your 403b, and then buy some Vanguard index funds with the taxable account you set up with leftover raise/bonus money?

Money going into a 401K is pre-tax, so your AGI is lower and that can be a tax advantage during high income years. Suze was talking about the advantages of having a substantial Roth IRA once you retire, because it is a great place to put your taxable bonds and REITs and such instead of putting them in taxable accounts.

The maximum for a Roth was only $5K this year.
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Old 11-01-2007, 12:33 PM   #3
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Yes, just wondering if there was any reason not to!

I think it was because I'd heard in a few places about not maxing the 401/403 thing, but i'm so close anyway, i guess i'm wringing my hands over a few bucks.
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Old 11-01-2007, 12:39 PM   #4
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Well, some people like having money in taxable accounts as opposed to a 401K (I know nothing about 403b's) because you have more control over what the investments are, and no problems with penalties and such if you retire in your 40's.

For someone like me, who is 59 already, the penalty is not an issue. So, I have been maxing out both. Lately I paid off my house and got a promotion, so the excess is going into taxable. Here I am, two years short of ER and I am just starting my taxable investments! (grin) Oh well. There are so many individual differences in approach.
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Old 11-01-2007, 12:46 PM   #5
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Oh, I'll bet I know what you are thinking of. She mentioned that if you pay off your whole 401K too early in the year, you might not get all of the match. I think you have to contribute at least 5% or so each pay period to get the match for that pay period. At least, it works that way at my work.
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Old 11-01-2007, 02:27 PM   #6
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Oh, I'll bet I know what you are thinking of. She mentioned that if you pay off your whole 401K too early in the year, you might not get all of the match. I think you have to contribute at least 5% or so each pay period to get the match for that pay period. At least, it works that way at my work.
Will vary by company. At MegaTech I maxed out my 401 in February. The small (2% I think) company match is trickling in each payday. So I'm getting it all just spread over 12 months. I intend to do the same thing in 2008 though I don't intend to work all year. I'll get my 20.5K pre-tax money in and a few months of company match.

I think the main thing for 403/401 decision is whether you are also getting good investment options. The options in my 401K are good enough and cheap enough that I will probably keep it when I bail in 6 months.

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Old 11-01-2007, 02:45 PM   #7
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Ok,
Soooo...i've nearly maxed out my 403b (must be some lame psych reason i haven't - only off by like $50 a check) and started my Roth. yay for me.

Questions:

*Should I max my 403b next year w/ any raise/bonus - OR - put it in after tax investment (more mutual funds? what are other options?).

*Suzie on Oprah said something about Roth being better than 401k and only invest up to your match - but to me it seems the tax benefits don't match (and i recall some of you saying the same thing when i complained about the fees before)? However, my 403b stinks w/ the 1.2 annuity fee on top of each funds fees (about .4-.9 each).

Anyhow, that point is a little moot, since i will max the Roth, so i'm asking what to do with the raise/ bonus - which i'd usually split and put half in my 403b and the rest in my savings. Since i'm almost maxed out, i need new options.

What say ye?
There's no tax benefit NOW when investing in ROTH, however, you do gain on-going benefit (no yearly tax) and tax-free withdrawals later on...

Normally, general rule is to invest in 401k/403b up to a match, then ROTH, then back to 40xx - much depends on your circumstances.

Are your only 403b options annuities with total expense ratios hovering around 2%? Those fees seem pretty steep to me... enough to make me wonder whether you would be better of sticking to taxable/ROTH only.

Does your employer provide any match? Can you self-direct to some other options? Are you planning to stick around with this company for a while?
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Old 11-01-2007, 05:03 PM   #8
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There's no tax benefit NOW when investing in ROTH, however, you do gain on-going benefit (no yearly tax) and tax-free withdrawals later on...

Normally, general rule is to invest in 401k/403b up to a match, then ROTH, then back to 40xx - much depends on your circumstances.

Are your only 403b options annuities with total expense ratios hovering around 2%? Those fees seem pretty steep to me... enough to make me wonder whether you would be better of sticking to taxable/ROTH only.

Does your employer provide any match? Can you self-direct to some other options? Are you planning to stick around with this company for a while?
I think that's what Suze was talking about since she was giving advice to a young person starting out - 401 up to match, then roth etc.

In my case my 403b's fee is the 1.2 plus the fee of each fund (.4 and up)

I asked this group about that a while back and some said they'd run and go for the after tax, and some said the tax benefit (lowering my income) was worth the higher fees...

Our match is now 6%

but i'm already contributing way over that and I don't think I can lower what i contribute anyway...I'll be around here for at least the next few years, beyond that I don't know.
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Old 11-01-2007, 05:30 PM   #9
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How good are the 403b offerings?

I gave up on ours when I couldnt stomach the high fees plus the bad underperforming fund choices.

You only have to pay the tax once. You pay the fees on the balance each and every year.

2% over 15 years is a lot worse than 15-20% once.

If you have good fund choices, load it up. At least get the match. Then fund a roth to the max. Then start adding to your taxable account. If the fund choices stink, I'd fund only to the match, fund a roth, then taxable.
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Old 11-01-2007, 05:54 PM   #10
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the offerings are not that great, it is hard to find funds with low fees...

i shifted everything in February to a couple of fidelity funds and the index funds (ING index funds)...which i'm not sure are great or not...their fees are lower than the other offerings and their returns are ok.

Thx for the pt on the 2% annually vs one time...that helps clarify what to think about it.

but as i said, i don't think i can reduce what i currently give, but it gives me pause about increasing or sticking bonuses in there.

i believe my fed tax rate is 28%.
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Old 11-01-2007, 06:01 PM   #11
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So then you're at 15 years minus underperformance vs other choices for a break even.

Now, next question is what are your options for distribution? Do they require that you take a lump sum or annuitization? Is there a fee or charge for lump sum conversion to an IRA? Do they waive or reduce the fee after a certain time period, many do so after ten years but some only for the money thats been there for ten years or longer.

If you're going to get whacked for a fee to get your money out at the end, factor that in as well. Unless you're a fan of VA's.
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Old 11-01-2007, 06:29 PM   #12
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These are the funds available...i'm looking at the 400+ page prospectus to try to answer the other questions you posed...

Variable Investment Options (The Funds)*
AIM V.I. Capital Appreciation Fund (Series I)
AIM V.I. Core Equity Fund (Series I)
American Century
Income & Growth Fund
(Advisor Class)
(1)(2)

Calvert Social Balanced Portfolio
Capital One Mid Cap Equity Fund
(Class A Shares)
(1)

EuroPacific Growth Fund
(Class R-4)(1)

Evergreen Special Values Fund (Class A)
(1)(2)

Fidelity
VIP Contrafund Portfolio
(Initial Class)
Fidelity
VIP Equity-Income Portfolio
(Initial Class)
Fidelity
VIP Growth Portfolio (Initial Class)
Fidelity
VIP Midcap Portfolio (Initial Class)(3)

Fidelity
VIP Overseas Portfolio (Initial
Class)
(2)

Franklin Small Cap Value Securities Fund
(Class 2)
ING AllianceBernstein Mid Cap Growth
Portfolio (Class S)
ING American Century Large Company Value
Portfolio (S Class)
ING American Century Small-Mid Cap Value
Portfolio (S Class)
ING Baron Asset Portfolio (S Class)
ING Baron Small Cap Growth Portfolio
(S Class)
ING BlackRock Large Cap Growth Portfolio
(Class I)
ING Columbia Small Cap Value II Portfolio
(S Class)
ING Davis Venture Value Portfolio (S Class)
ING Evergreen Health Sciences Portfolio
(Class S)
ING FMR
SM Diversified Mid Cap Portfolio
(Class S)**
ING FMR
SM Large Cap Growth Portfolio
(Class I)**
(4)

ING Fundamental Research Portfolio (S Class)
ING GET U.S. Core Portfolio
(5)

ING Global Resources Portfolio (Class S)
ING JPMorgan Emerging Markets Equity
Portfolio (Class S)
ING JPMorgan International Portfolio (I Class)
ING JPMorgan Mid Cap Value Portfolio
(S Class)
ING JPMorgan Small Cap Core Equity Portfolio
(Class S)
(4)

ING JPMorgan Value Opportunities Portfolio
(Class S)
ING Julius Baer Foreign Portfolio (Class S)
ING Legg Mason Partners Aggressive Growth
Portfolio (I Class)
ING Legg Mason Partners Large Cap Growth
Portfolio (I Class)
ING Legg Mason Value Portfolio (Class S)
ING Lord Abbett Affiliated Portfolio (Class I)
ING Marsico Growth Portfolio (Class S)
ING Marsico International Opportunities
Portfolio (Class S)
ING MFS Total Return Portfolio (Class S)
ING MFS Utilities Portfolio (Class S)
ING Neuberger Berman Partners Portfolio
(S Class)
ING OpCap Balanced Value Portfolio (S Class)
ING Oppenheimer Global Portfolio (I Class)
ING Oppenheimer Main Street Portfolio

(Class S)
ING Oppenheimer Strategic Income Portfolio
(I Class)
ING PIMCO High Yield Portfolio (Class S)
ING PIMCO Total Return Portfolio (S Class)
ING Pioneer Equity Income Portfolio (Class I)
(6)

ING Pioneer Fund Portfolio (Class I)
ING Pioneer High Yield Portfolio (I Class)
ING Pioneer Mid Cap Value Portfolio (Class I)
ING Solution 2015 Portfolio (S Class)
(7)

ING Solution 2025 Portfolio (S Class)
(7)

ING Solution 2035 Portfolio (S Class)
(7)

ING Solution 2045 Portfolio (S Class)
(7)

ING Solution Income Portfolio (S Class)
(7)

ING Stock Index Portfolio (Class I)
ING T. Rowe Price Capital Appreciation
Portfolio (Class S)
ING T. Rowe Price Diversified Mid Cap Growth
Portfolio (I Class)
ING T. Rowe Price Equity Income Portfolio
(Class S)
ING T. Rowe Price Growth Equity Portfolio
(I Class)
ING Templeton Foreign Equity Portfolio
(S Class)
ING Templeton Global Growth Portfolio
(Class S)
ING Thornburg Value Portfolio (I Class)
(4)

ING UBS U.S. Large Cap Equity Portfolio
(I Class)
ING UBS U.S. Small Cap Growth Portfolio
(S Class)
ING Van Kampen Comstock Portfolio (S Class)
ING Van Kampen Equity and Income Portfolio
(I Class)
ING Van Kampen Growth and Income Portfolio
(Class S)
ING Van Kampen Real Estate Portfolio (Class S)
ING VP Balanced Portfolio, Inc. (Class I)
ING VP Financial Services Portfolio (Class I)
ING VP Global Science and Technology
Portfolio (Class I)
ING VP Growth and Income Portfolio (Class I)
ING VP Growth Portfolio (Class I)
ING VP Index Plus International Equity Portfolio
(Class S)
ING VP Index Plus LargeCap Portfolio (Class I)
ING VP Index Plus MidCap Portfolio (Class I)
ING VP Index Plus SmallCap Portfolio (Class I)
ING VP Intermediate Bond Portfolio (Class I)
ING VP International Equity Portfolio (Class I)
ING VP International Value Portfolio (Class I)
ING VP MidCap Opportunities Portfolio
(Class I)
ING VP Money Market Portfolio (Class I)
ING VP Real Estate Portfolio (Class I)
ING VP Small Company Portfolio (Class I)
ING VP SmallCap Opportunities Portfolio
(Class I)
ING VP Strategic Allocation Conservative
Portfolio (Class I)
ING VP Strategic Allocation Growth Portfolio
(Class I)
ING VP Strategic Allocation Moderate Portfolio
(Class I)
ING VP Value Opportunity Portfolio (Class I)
ING Wells Fargo Disciplined Value Portfolio
(Class S)
(4)

ING Wells Fargo Small Cap Disciplined
Portfolio (Class S)
LKCM Aquinas Growth Fund
(1)(3)

Lazard Mid Cap Portfolio (Open Shares)
(1)(8)

Lord Abbett Series Fund - Growth and Income
Portfolio (Class VC)
Lord Abbett Series Fund - Mid-Cap Value
Portfolio (Class VC)
Neuberger Berman Socially Responsive Fund

(Trust Class)
(1)

New Perspective Fund
(Class R-4)(1)

OpCap Mid Cap Portfolio
(8)

Oppenheimer Developing Markets Fund
(Class A)
(1)(2)

Oppenheimer Main Street Small Cap Fund
/VA
Pax World Balanced Fund (Individual Investor
Class)
(1)

PIMCO VIT Real Return Portfolio
(Administrative Class)
Pioneer Emerging Markets VCT Portfolio (Class
I)
(8)

Pioneer Equity Income VCT Portfolio (Class I)
Pioneer Fund VCT Portfolio (Class I)
Pioneer High Yield VCT Portfolio (Class I)
Pioneer Mid Cap Value VCT Portfolio
(Class I)
Templeton Global Bond Fund (Class A)
(1)

The Growth Fund of America
(Class R-4)(1)

Wanger International Small Cap
(8)

Wanger Select
Wanger U.S. Smaller Companies
Washington Mutual Investors Fund
SM (Class
R-4)
(1)

* The following funds are only available to a limited number of participants who did not participate in the fund substitution
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Old 11-01-2007, 07:01 PM   #13
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the offerings are not that great, it is hard to find funds with low fees...

i shifted everything in February to a couple of fidelity funds and the index funds (ING index funds)...which i'm not sure are great or not...their fees are lower than the other offerings and their returns are ok.

Thx for the pt on the 2% annually vs one time...that helps clarify what to think about it.

but as i said, i don't think i can reduce what i currently give, but it gives me pause about increasing or sticking bonuses in there.

i believe my fed tax rate is 28%.
I would not be so sure about not being able to reduce the amount/or pay % going into your 401/403 deferrals. I think you probably have to have that option.

Better check you plan docs. Then reduce the deferral amount/pay% if you think that the best course. I would still defer enough to get the maximum employer match amount though.
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Old 11-01-2007, 07:47 PM   #14
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Ugh, dont you hate those documents? Mine was >500 pages. And they change stuff in it every year and wont just tell you what changed.

Looks like the same fund picks I had to choose from, except we didnt have any of those ING funds.

I wanted to buy some Wanger Small Cap just to say I owned it.

But I held my nose and put most of the money into an S&P 500 index option they had which was only 75bp, then factored that equity holding into my AA.
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Old 11-01-2007, 08:12 PM   #15
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I would not be so sure about not being able to reduce the amount/or pay % going into your 401/403 deferrals. I think you probably have to have that option.

Better check you plan docs. Then reduce the deferral amount/pay% if you think that the best course. I would still defer enough to get the maximum employer match amount though.
Yeah, I'll look into it for sure...i've only casually discussed that w/ our finance person, but i will follow up...
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Old 11-01-2007, 08:28 PM   #16
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Apparently there is a class action suit pending against ING, one part of the claim is because of collab between the teachers union and ING to market the plan, the other part is this (and pertains to me!)

<<In addition, despite its fiduciary and other duties to Plan participants, ING engaged in revenue sharing kickbacks with mutual fund companies, whereby ING selected funds based on the payments it would receive rather than an objective and prudent evaluation of the merits of the funds and the best interests of Plan participants. ING’s selection of high-cost funds instead of widely known and available low-cost, high-quality alternatives substantially diminished Plan participants’ retirement savings.>> case and firm info here ERISAfraud.com - ING

what to do, what to do...i also know they made it very terrible for us to switch to another provider so we didn't...my annoyance is at least validated, if not fueled!
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Old 11-01-2007, 09:06 PM   #17
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Ick. I feel so much better about 403b funds. Thankfully my wifes new employer has a regular 401k. Unfortunately the cheapest funds there are also about 75bp.
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Old 11-02-2007, 07:32 AM   #18
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bright eyed - your's is truly a dismal set of options;

I would continue maxing out your 403b under the following conditions:
(1) I am not sure how 403bs work, I am assuming the whole mess can be rolled over into a regular IRA (elsewhere) at some point
(2) this is the only way to reduce your AIG and unless you max out you will be hit w/ AMT or other phaseouts and/or your will be unable to contribute to ROTH (to high AGI; here I am assuming you will have extra $$ to fund ROTH even when 403b is maxed out)
(3) you're not planning to stick w/ your current employer for more than 5 yrs or so - in this case, the value of creating the tax deferred space outweighs the 2% yearly drag

Otherwise, I would probably contribute enough to get the 6% match (again, in my opinion, the 6% match outweighs the 2% drag), then ROTH, then taxable. If you go with this approach, dump the whole contribution in the cheapest option you have - hopefully, this will be some broad (no specialty) type fund - and round-up the rest of your allocation with funds in ROTH/taxable.

EDIT - A side note, I would be completely shocked if you did not have any options to reduce contributions to 403b. However, it is true that, potentially, the only option you may have is to bail out of the plan completely and are unable to join it till some pre-specified open enrollment date. This is a common question, your HR or plan administration should have information on this readily available.
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Old 11-02-2007, 10:37 AM   #19
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Ok,
Soooo...i've nearly maxed out my 403b (must be some lame psych reason i haven't - only off by like $50 a check) and started my Roth. yay for me.

Questions:

*Should I max my 403b next year w/ any raise/bonus - OR - put it in after tax investment (more mutual funds? what are other options?).

*Suzie on Oprah said something about Roth being better than 401k and only invest up to your match - but to me it seems the tax benefits don't match (and i recall some of you saying the same thing when i complained about the fees before)? However, my 403b stinks w/ the 1.2 annuity fee on top of each funds fees (about .4-.9 each).

Anyhow, that point is a little moot, since i will max the Roth, so i'm asking what to do with the raise/ bonus - which i'd usually split and put half in my 403b and the rest in my savings. Since i'm almost maxed out, i need new options.

What say ye?
Blanket financial advice should be taken with 2 grains of salt and a little pepper.

If a person has limited means to invest, then 401k up to match, then Roth makes sense. If a person has lots of money to invest, maxing 401k and maxing Roth are just the starting points.

Taxable accounts also work for retirement.

One of my favorate quotes is "what is most tax efficient going in is not the most tax efficient coming out".

Meaning you put stocks in a 401k and convert 15% capital gains tax rates (or 5%/10% rates, depending on tax bracket) to 35,33,28, or 25% income tax brackets. This does not even include state taxes either.

Dividends are same issue. Tax efficient accumulating them in a 401k, but tax in efficient taking them out.

Diversify your account types- taxable accounts (regular brokerage accounts) are OK for extra savings.
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Old 11-02-2007, 11:26 AM   #20
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bright eyed - your's is truly a dismal set of options;

I would continue maxing out your 403b under the following conditions:
(1) I am not sure how 403bs work, I am assuming the whole mess can be rolled over into a regular IRA (elsewhere) at some point
(2) this is the only way to reduce your AIG and unless you max out you will be hit w/ AMT or other phaseouts and/or your will be unable to contribute to ROTH (to high AGI; here I am assuming you will have extra $$ to fund ROTH even when 403b is maxed out)
(3) you're not planning to stick w/ your current employer for more than 5 yrs or so - in this case, the value of creating the tax deferred space outweighs the 2% yearly drag

Otherwise, I would probably contribute enough to get the 6% match (again, in my opinion, the 6% match outweighs the 2% drag), then ROTH, then taxable. If you go with this approach, dump the whole contribution in the cheapest option you have - hopefully, this will be some broad (no specialty) type fund - and round-up the rest of your allocation with funds in ROTH/taxable.

EDIT - A side note, I would be completely shocked if you did not have any options to reduce contributions to 403b. However, it is true that, potentially, the only option you may have is to bail out of the plan completely and are unable to join it till some pre-specified open enrollment date. This is a common question, your HR or plan administration should have information on this readily available.
*I think if i leave the job I would be able to roll over, but perhaps after I hit the 10 year mark (which is not that far off) to avoid penalties.

*Don't need the AGI reduction for Roth just yet (i work at a NON-profit )

*I plan on maxing out Roth no matter what and am working on reducing expenses to deal w/ rest of savings/investment needs...

*On the reducing contribution part, I've always heard that you can always increase but can't go back, only pull out/stop contributing. but will confirm that again.
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