Dump the 403b?

[cute fuzzy bunny]

Having just finished our first married-filing-jointly return, I see our federal tax rate was about 7.5% along with a 6.1% california rate.

My wifes been pushing up her 403b contributions, as in her former 28% tax bracket that made a lot of sense. In our current tax environment, I'm not sure its worth the tradeoff. Her 403b only has a small selection of funds, none of which I'm thrilled with, and all of which carry ~1-1.5% expense ratios.

There were enough options for me to cobble up an AA mix of s&p500, broad bond, reit, small caps, mid caps, and a smidgeon of global bonds. But wow, the expenses are sky high and except for the s&p500 index its all managed funds with lagging returns.

I'm terribly tempted to have her drop the 403b contributions completely. At that point her income would more than satisfy our monthly cash requirements, allowing me to completely stop withdrawing from our portfolio with the exception of major capital purchases or special expenses.

We'd also get to do our investments in the fund choices I prefer at 1/5th the costs, and withdraw that money anytime without penalties as opposed to waiting until we're 59.5 to start withdrawing from the 403b's. All with after tax money though, which I think is our only downside. I would still fully fund both of our Roth accounts each year, and her hospital contributes to an annuity pension setup that should pay her a nice sum when she retires.

Any holes in that plan?

And yes, its pretty sweet to marry a nurse with a purse

 

[brewer12345]

Sounds about right to me. The only thing to check is whether should would pass up any employer matching funds. If so, I would probably put in just enough to get the match.

 

[yakers]

I think you are right to question the usefullness of 403bs. My wife is a teacher and her 403 program has few choices, no match, high fees and is almost ununderstandable. She will be retiring next year and I expect to have her roll it over into a Vanguard fund. The only good aspects of her 403 are that it was "forced savings" and it did reduce our taxes up front. Go to 403bwise.com for good information. A decent 401k is generally better.

 

[JLP]

Ah, the lovely 403(b) plan.  Somehow the insurance industry weaseled their way into this field.  People talk about wanting to pay teachers more.  Heck, if they did away with high-fee 403(b) plans, teachers would get a huge raise!

Here's a cool website about 403(b) plans that you might want to check out: http://www.403bwise.com/index.html.  This guy has done a nice job with his website.

JLP

http://AllThingsFinancial.blogspot.com

 

[sgeeeee]

The 403B plans do have more liberal withdrawal rules than 401Ks or IRAs. My understanding is that you can begin withdrawing at any age. All you have to do is declare retirement. That could be an advantage, depending on where the remainder of your funds are.

 

[cute fuzzy bunny]

Thanks SG, I didnt know that about 403b's. I presumed they worked like 401ks only with lousier investment options. I need to read up on that suggested web site a little more before deciding. I'd love to roll it over into vanguard, but I remember something about a sizeable withdrawal penalty. Might be worth it.

Theres no employer matching on this 403b, the employer contributed separately to an annuity pension fund that we can control the investments on, but they're also very limited. On that one, we have 100% of it in the American Balanced Fund...a typical 60/40 with a reasonable set of costs.

I like the idea of being able to place our taxable portfolio into autopilot and not taking any more money out of it and just use her income as our cash pool. We let the taxable port grow for 5-7 years and we can easily afford for my wife to quit working, if thats what she wants. Right now she loves her job and wants to keep doing it. Since she has asthma, our medical insurance would have to go the cobra-hippa route with blue cross and hope we can force them to keep the policy, or go with the state high risk pool. I'm betting thats a little spendy.

Our tax profile is still likely to remain low...while we had some extra property taxes this past year between two principal residences and a 3500 special assessment to bring us "city water" in place of our well...but we made ourselves a new deduction and he's a lot cuter.

Besides, we were starting to look like we'd be a little TOO flush when we hit 60. By then, my IRA would be over a mil (projected) in todays dollars, she'd have about 750k in todays dollars in her 403b, we'd have about 450k in Roths, plus the taxable portfolio that I've been living on, plus her pension which would run about 25k a year in todays dollars (COLA'd), plus our social security (if any).

Maybe we live a little better today instead of rolling in it in 20 years.

 

[sgeeeee]

I may be wrong about the 403B withdrawal rules. I've not had to do any research into these myself and am only repeating what I heard from a friend the other day. If they are right, it might be worthwhile to look into.

 

[cute fuzzy bunny]

Even if she's not a teacher? She's in health care.