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Which 403b provider should I choose?
Old 03-17-2015, 11:26 AM   #1
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Which 403b provider should I choose?

Greetings,

I am a new member to this forum and I am eager to learn as much as I can. I am a male, 31 year old teacher residing in TX. Lately, I started thinking about retirement and I feel like I need to open up a 403b. However, my district offers a bunch of providers and I do not know which one to choose. I don't even know what I should be looking for when picking a provider. Could someone please advise on which company I should choose and why? I've been working for 6 years and I am planning to retire by 60. I have pasted the names of all the companies below.

ACTIVE - HISD 403(b) and 457(b) Providers - as of 1/27/2015
Provider Phone Number
Provider Websites:
Annuity Contracts
Non-Annuity Contracts
403(b) Contract Provider
Roth 403(b) Contributions
457(b) Contract Provider
X - indicates the product is offered

American Century Investments

Americo Financial Life & Annuity

AXA Equitable LIC

Federated Funds

Fidelity Investments

Fidelity Security LLC

First Investors Corp

Great American / Annuity Inv LIC

Horace Mann LIC

Industrial-Alliance Pacific Ins and Fin Svcs, Inc

Jefferson National LIC

Kemper Investors LIC / Commonwealth Annuity

Life Insurance Company of the Southwest

Lincoln Financial Group

Lincoln Investment Planning

MassMutual Life / C.M. Life

Metropolitan LIC

Midland National LIC

Modern Woodmen of America

North American Co for Life and Health Ins

Oppenheimer Funds

Plan Member Services

Reliastar LIC

Riversource LIC and Investment Svcs

Security Benefit

Symetra LIC

The Legend Group

Thrivent Financial for Lutherans

USAA LIC and Investment Svc

VALIC

Voya Life Insurance & Annuity Co

Waddell & Reed Inc

Western National LIC
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Which 403b provider should I choose?
Old 03-17-2015, 02:17 PM   #2
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Which 403b provider should I choose?

I am assuming you get no match from school when I say this. So assuming I am correct, I immediately wouldn't just jump into one. Most of these things have more hidden expense fees than a dog has fleas.
I would strongly at least consider funding an ira through Vanguard ( if you meet income restrictions) or a Roth unless you are trying to shovel big amounts of money into a tax deferral account.
Your pension and payouts may be different than mine, but for half my career I was in 15% tax bracket, and my pension I am drawing is in 25% tax bracket. Why would I want to save 15% in taxes, just to pay it out in 25% bracket later in retirement? That's 67% more payment in taxes. Something for you to consider when dealing with pensions before you reach your decision.


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Old 03-17-2015, 04:07 PM   #3
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Our 403(b) plan didn't have as many choices as yours. Vanguard wasn't an option and I really had no idea about investing/funds. So I used a very clever (ha) technique to decide: a copy of Money magazine and basically threw darts.

Initially, I had American Century (it used to be Twentieth Century, but... whoops), T. Rowe Price, and Fidelity.

I have some experience dealing with VALIC (used to be AIG-VALIC, but whoops! 2008 happened). They were not fun to deal with.

I ended up moving all my things to Fidelity where they stay. Our plan has a pretty wide selection (200+) of funds from which to choose, but Fidelity likes to slice things razor-thin.
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Old 03-17-2015, 04:25 PM   #4
Confused about dryer sheets
 
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Thank you for the replies!

@Mulligan:

To be honest with you, I want to get a 403b because my wife and I made over 155K this past year (I made 52k and she made the rest). Since last year was her first year working with her degree, we didn't know that the IRS could collect so much money in taxes from people making what we make. Sadly, this year we are paying the IRS a total of 25K dollars worth of taxes (that's an insane amount of money). I have heard that you can avoid paying so much in taxes if you "shrink your paycheck" by opening a 401k (in my case, 403b).

My questions are:

Does it make sense for me and her to open a 403b/401k respectively to shrink our paycheck?

Are any of those companies that my employer provides decent enough to "shovel my money into"?

What other options are there, if any, to avoid paying so much money in taxes (legal ways of course)?

As I said earlier, I am totally new at this since I've never been past the 15% tax bracket in my life. I'd rather save for retirement than giving my money to the IRS. Any advice from anyone on this matter would be appreciated.

@steelyman:

Would you recommend Fidelity Investments out of all those providers on my list? Please let me know.
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Old 03-17-2015, 04:35 PM   #5
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Fidelity Investments. But I want to see the fund list and expense ratios before signing this post in blood.

Also, once you mention total income, things become much clearer. It is as if your income is placed on top of hers...
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Old 03-17-2015, 04:37 PM   #6
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Quote:
Originally Posted by texas02118 View Post
@steelyman:

Would you recommend Fidelity Investments out of all those providers on my list? Please let me know.

"Recommend" is not a word I would use, I was only commenting on interactions I've had with the providers you listed (that's a lot!)

I have nothing to cause me to disrespect either American Century or T. Rowe Price but it's nice to cut the statements you receive from 3 to 1.

There are people here who are more knowledgeable about investing than I, but I am with Fidelity and have no complaints so that's what I can offer by way of personal experience.
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Old 03-17-2015, 04:41 PM   #7
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It looks like you have a wonderful opportunity to reach FIRE very early. You have access to both a 403b and a 457b plan. You can fully fund BOTH and put away $36k of your pre-tax income. The 457b is especially helpful, as it is not a qualifying retirement plan, and there is no early withdrawal penalty for taking money out before age 59 1/2.


The key here is to pick plan providers that won't kill you with fees or force you into an annuity. If Fidelity is available for both plans, they are probably the best choice. Generally, it's a wise idea to avoid any provider that is an insurance company. Unfortunately, that's most of the list.


If you decide to fund both, look at which companies on your list offer which accounts. Then come back and ask for the winner in each category.
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Old 03-17-2015, 04:43 PM   #8
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Don't Do What I Did

Quote:
Originally Posted by steelyman View Post
Our 403(b) plan didn't have as many choices as yours. Vanguard wasn't an option and I really had no idea about investing/funds. So I used a very clever (ha) technique to decide: a copy of Money magazine and basically threw darts.

Initially, I had American Century (it used to be Twentieth Century, but... whoops), T. Rowe Price, and Fidelity.

I have some experience dealing with VALIC (used to be AIG-VALIC, but whoops! 2008 happened). They were not fun to deal with.

I ended up moving all my things to Fidelity where they stay. Our plan has a pretty wide selection (200+) of funds from which to choose, but Fidelity likes to slice things razor-thin.
Back in '87, in my 30's and a teacher starting to think about retirement, my district also had a long list. I had no idea where to start, and little time to educate myself. What I did understand, though, was that a 403B could be funded with more $ than an IRA; and the reduction in taxable income looked good too.

I should have learned more about variable deferred annuities, though; that's what every salesman offered (those I interviewed, and whose materials I perused). They were selling me the tax deferral benefits and the added retirement income (but ANY 403 B does that). What I did not read closely was the surrender charges, in case I changed my mind and wanted to move that $ elsewhere. At the time, I ended up in Aetna (which became AIG) and Nationwide. As with the others I'd considered, the surrender charges were 7%, meaning it took 7 years before I could move my $ without incurring significant penalties.

During those 7 years I learned how to invest the sub accounts the best I could.....but also concluded that what I really needed was a Vanguard or a Fidelity (which were not on the list for my district). While I did earn some growth in those sub accounts, I treated it as a learning experience, and got out after 7 years and went to Fidelity and Vanguard, who have far lower expenses (which did indeed enhance my earnings).

If I were you, I'd check out the expenses on your district's Fidelity option; you'll improve your earnings if Fidelity's expenses are below those of the other companies.

Another caveat----you may want to check this with your district: will they allow you roll over 403B funds you deferred (while at the district) into another fund not offered by the district? In my district, this could only be done if I left the district. Because we moved across the country, I was able to roll over the funds after the 7 years were up; if I had stayed in the district another 8+ years, I still would have had to wait until I left, whenever that would have been..... (So I would have been stuck with my poor choices in 403B's until I retired 20 years later!) Does your district have a similar policy? If so, I would do a lot of reading and analysis of the 403 offerings before making a choice.........you could be stuck with it, even if you don't like the performance of the fund.

And you certainly don't want to change a teaching job just because of regret over a 403B decision.

Best of luck! And I hope you can find the time to make better choices than I did!

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Which 403b provider should I choose?
Old 03-17-2015, 06:00 PM   #9
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Which 403b provider should I choose?

Quote:
Originally Posted by texas02118 View Post
Thank you for the replies!

@Mulligan:

To be honest with you, I want to get a 403b because my wife and I made over 155K this past year (I made 52k and she made the rest). Since last year was her first year working with her degree, we didn't know that the IRS could collect so much money in taxes from people making what we make. Sadly, this year we are paying the IRS a total of 25K dollars worth of taxes (that's an insane amount of money). I have heard that you can avoid paying so much in taxes if you "shrink your paycheck" by opening a 401k (in my case, 403b).

My questions are:

Does it make sense for me and her to open a 403b/401k respectively to shrink our paycheck?

Are any of those companies that my employer provides decent enough to "shovel my money into"?

What other options are there, if any, to avoid paying so much money in taxes (legal ways of course)?

As I said earlier, I am totally new at this since I've never been past the 15% tax bracket in my life. I'd rather save for retirement than giving my money to the IRS. Any advice from anyone on this matter would be appreciated.

@steelyman:

Would you recommend Fidelity Investments out of all those providers on my list? Please let me know.

Steely I hope others chime in for you and Litgal has some good precautions. Your wife's income changes the strategy a bit. How much are you wanting to save a year? Has your wife evaluated her 401k options? If the amount of income you are wanting to save is under her 401k max floor, I would look to go there if the fees are lower.
I would also consider spreading your bets and fund your Roth account too. You get the tax break on the withdrawal not at the beginning. It really can provide you some income versatility at retirement as far as income tax burden goes. Plus if "something ever goes wrong down the road" you can pull your Roth contributions out penalty free. You also will have lower expense ratios in a Roth set up through Vanguard/Fidelity.


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Old 03-17-2015, 09:09 PM   #10
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Dear Texas--

In reply to your first three questions: listen to what Mulligan says. Vanguard and Fidelity both have low expenses. And if you both fund your 403b/401K you will have the chance to RE.......especially if you supplement with Roths.

DH and I did this, and appreciated the chance to RE. Our income--in the later years-- was comparable to yours.

Plus-- at tax time-- it's fun to read the little box on the W-2 that tells you how much you squirreled away for future fun and leisure. You can smile to yourself and gloat, "Well, the government didn't get to tax me on THAT. THAT money is for me, so I can have fun some day down the line."

That's a little bonus you can enjoy, along with your lower income tax bill.

LG

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Old 03-17-2015, 10:05 PM   #11
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Thank you for all the replies I've received so far. I talked to my wife and she said that the only 401k provider that she has available is Fidelity. She is planning to put away 15% of her salary towards that 401k. She said that they automatically place the money into a retirement fund based on the year you are supposed to retire. Does anyone know anything about this? Is that a good way to invest the money?

Also, I am not sure if this is possible or not, but I was planning to contribute the max (18k) to my 403b and 457b? Or would it be better to spread out the money between 457b and roth 403b?
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Old 03-17-2015, 11:03 PM   #12
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I agree Fidelity can treat you good with full service and some good pretty low fee funds. Also nice to have all of your accounts in one place to keep track of. Retirement Age funds can work, but I prefer to invest in specific funds and have better control of investment categories. But it depends on your employer plan and what options you have.

I also agree you are correct that anything you save is worth max tax rate (25%) savings since combined income is at that level. I would go 457 first as pre-tax since it can be withdrawn before age 59.5 without any penalties, but is effectively same as 403b from tax standpoint. Roth is great, but is after tax money - your goal here is to reduce taxable income first priority.

Not sure on tax rules, but you might be able to save more than the $18K pre-tax in 403b, if you can save more in 457 pre-tax? Someone more familiar can answer that. If so max out both if you can to reduce taxable income and max out savings. Your wife can max out her $18K as well in 401k. So minimum pre-tax you can do combined you and wife is $36K for this year, maybe more if you can stack 457 on top of that.
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Old 03-18-2015, 12:50 AM   #13
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Quote:
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... the only 401k provider that she has available is Fidelity... She said that they automatically place the money into a retirement fund based on the year you are supposed to retire. Does anyone know anything about this? Is that a good way to invest the money?
That sounds like a default account for the money to start with. I had a Fidelity 401K. You could select which account (or accounts) you wanted the paycheck money to move into. You could also move money around. We had probably 20 funds to start with. Towards the end, there were more choices.

I always put the contributions into company stock. Then I would reallocate into assorted index funds or mutual funds. There are several threads on 3 or 4 fund portfolios. Starting with a default retirement target age fund is not the worst place to start.
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Old 03-18-2015, 07:24 AM   #14
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You can put $18k in EACH plan. Total of $36k. Add the $18k your wife can contribute to her 401k and the $11k you can put in IRA's (I'm guessing after tax Roth's would be available), and you can put $65k away for the future.


$155k-$54k = $101k. That should qualify you for Roth's. And a lot lower tax bill, once you subtract the deductions.
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