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Louisiana Retirement Investment - TRSL, 403(b) and 457(b)

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  • Louisiana Retirement Investment - TRSL, 403(b) and 457(b)

    I am a new physician who finished residency and moved to Louisiana. I am keen in contributing into retirement accounts. However, I have been given too many options which are confusing me. I am new to the investing world as well, however catching up to speed. I am an IMG with debt that will be covered in 2-3 months. I am planning to do fellowship in 3 years. Currently I have been given the option of TRSL vs ORP (Optional Retirement Plan) and supplemental plans - 403b and 527b.

    I was told the TRSL is employer matched and is similar to a 401K. I can switch to a ORP plan within 5 years with only my employee contributions. Employer contribution is employer's normal cost contribution (which has been 5%-7% of salary). It is a defined benefit plan.

    ORP carriers are VALIC (now known as AIG), TIAA-CREF (Teachers insurance and annuity association-college retirement equity fund, and VOYA life insurance and annuity company. Employer contribution is 6.2%. This is defined contribution plan.

    403(b) is Tax-deferred, non-governmental and not matched by employer. 403(b) plans are AIG/VALIC, TIAA, and Fidelity. AIG and fidelity has Administrative Fee of 0.13% and investment fee of 0.16%

    457(b) - LA Public employees deferred compensation plan - the annual fee is $22.50.

    Given all this data , how do I go about contributing in the plan. My initial plan was to put money in 401K and Roth IRA before finding out this salad of options. Please help! Thanks

  • #2
    Originally posted by Azuren View Post
    I am a new physician who finished residency and moved to Louisiana. I am keen in contributing into retirement accounts. However, I have been given too many options which are confusing me. I am new to the investing world as well, however catching up to speed. I am an IMG with debt that will be covered in 2-3 months. I am planning to do fellowship in 3 years. Currently I have been given the option of TRSL vs ORP (Optional Retirement Plan) and supplemental plans - 403b and 527b. Are you in a fellowship program for the next 3 years or are you planning on obtaining a fellowship 3 years from now? That is are you earning "doctor" money or are you at resident/fellow salary level?

    I was told the TRSL is employer matched and is similar to a 401K. I can switch to a ORP plan within 5 years with only my employee contributions. Employer contribution is employer's normal cost contribution (which has been 5%-7% of salary). It is a defined benefit plan. TeacherRetirementSystem (TRS) plans in general are not similar to 401k plans. They function more like Social Security that creates a pension for you when you retire. In fact most employees with TRS-type plans do not contribute to SS. I'm not familiar with the LA plan specifically but I assume it is probably similar.

    ORP carriers are VALIC (now known as AIG), TIAA-CREF (Teachers insurance and annuity association-college retirement equity fund, and VOYA life insurance and annuity company. Employer contribution is 6.2%. This is defined contribution plan. Defined contribution as noted. Potentially greater return since you'll have access to equity mutual funds. While I suspect they'll have higher than desirable expense ratios you might find a decent index fund (S&P 500 or Total Market) there. Just don't expect Vanguard expense levels and don't pick an annuity.

    403(b) is Tax-deferred, non-governmental and not matched by employer. 403(b) plans are AIG/VALIC, TIAA, and Fidelity. AIG and fidelity has Administrative Fee of 0.13% and investment fee of 0.16% Fidelity should have a good selection of low cost mutual fund choices.

    457(b) - LA Public employees deferred compensation plan - the annual fee is $22.50. Would need to know investment options and distribution options (there's a current thread regarding limited distribution options from another forum member with a 457 plan).

    Given all this data , how do I go about contributing in the plan. My initial plan was to put money in 401K and Roth IRA before finding out this salad of options. Please help! Thanks
    You will have to pick either the TRS or ORP option as they are basically a SS substitute. Assuming you'll only be employed there for 3 years, the ORP is probably the better choice. After termination, you should be able to roll over funds from either to your own IRA (or solo 401k if you're eligible) or future employer's plan. The TRS will have some formula to determine how much while the ORP should be your contributions plus earnings. I would check the plan documents to see if you get any employer contributions back when you leave but it will likely be little to nothing.

    I would max out the 403(b) if you can. This will functionally be the same as your 401k initial plan. The Roth IRA is also an excellent idea. While I don't know how much you'll be earning I would get into the habit of using the back door Roth contribution method even if you're eligible for a direct contribution.

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    • #3
      Just in general - we have advised clients in these states to choose the ORP option but this is not advice on your specific situation, just a general observation. Agree with GasFIRE to start with 403b and bd Roth.
      Our passion is protecting clients and others from predatory and ignorant advisors. Fox & Co CPAs, Fox & Co Wealth Mgmt. 270-247-6087

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      • #4
        First of all, Thank you so much for replying. Greatly appreciated.

        Are you in a fellowship program for the next 3 years or are you planning on obtaining a fellowship 3 years from now? That is are you earning "doctor" money or are you at resident/fellow salary level?
        I am currently earning physician level income (working as a hospitalist) and planning on obtaining a fellowship 3 years from now. The fellowship is 3 years +/-1 based on the specialization further.

        I just opened a bd Roth and planning to open 403b via fidelity and ORP (AIG. The other two are annuity).

        As for the 457(b) - I have attached the fee plan which is tier based. It has both traditional 457 and roth 457. I have also attached the fund performance. Contribution limit is 19500 for 2020. If i elect to do 457 as well, the contribution limit is going to affect the 403b fidelity limit.
        Question - Is it just better to keep max out with 403b or divide between 403 and 457?
        Attached Files

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        • #5
          Do this: ORP (Optional Retirement Plan) and supplemental plans - 403b and 457b. and then your own.


          ORP This is a one time election - irrevocable (you can't get back in ever) 8% of salary (I think this is a mandatory plan) The minimum contribution rate is 6.2% go for 8%
          403(b) Optional $19.5k
          457(b) Optional $19.5k

          Bd Roth After tax $6k
          Taxable As much as you need to hit a minimum of 20%, or more if you want.

          I peeked at your VOYA and Fidelity and State of Louisiana funds. You have some good funds, Total market and bonds and S&P 500. Backup the truck and load your retirement accounts as much as you can afford. The overflow is taxable.



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          • #6
            Agree with Tim. Only caveat regarding the 457 is the $$ technically belongs to the state of LA until it’s distributed to you, so roll it over to your next employer’s non-457 retirement plan as soon as feasible once you leave. You could also roll it into your own IRA but that will interfere with your BD Roth in the future.

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            • #7
              Awesome, GasFIRE Tim jfoxcpacfp Thank you so much for helping me out! I'm sure I will have more questions in the future.

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              • #8
                457(b) Optional $19.5k - Is it better to do pre-tax or post-tax in this situation? I have both the options.

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                • #9
                  what's your marginal tax rate? you're in a fellowship? I'd probably vote for post-tax for the years 2020 and 2021 but reconsider this in 2022 depending on your income and tax rates. Louisiana income tax rate is 6%. not low but not high

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                  • #10
                    Originally posted by Azuren View Post
                    457(b) Optional $19.5k - Is it better to do pre-tax or post-tax in this situation? I have both the options.
                    Post tax this year. Will be last year at a lower marginal tax rate. Assuming you are at full compensation next year ( no lag in growing income) you will be at your full high marginal tax rate. Pre tax makes sense for a long time.

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