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Starting a 403b/457, Roth?

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  • Starting a 403b/457, Roth?

    Hello folks, as I mentioned in another thread I'm currently debating PSLF vs aggressive student loan payback for 5 years. Regardless of which option I choose I believe I will have at least 36k/year to put towards retirement, and possibly the full 47k that would include Roth contributions. I will have to continue to read to really know what I'm doing, but I was hoping for some basic guidance to get me started.

     

    My workplace offers a 403b and a (governmental) 457. The financial advisor who this plan is offered through is someone at Edward Jones who has apparently been an advisor for 15 years but only has an AAMS. The account is through MassMutual Retirement Services. They also offer online 'asset allocation recommendations' through Morningstar Associates. (Sorry, I'm not sure this is relevant.)

     

    Here are the investment options from the information the advisor sent me (haven't met in person yet). I included a screenshot of the returns, fees and holdings of one particular fund. I'm hoping someone can point out the important numbers, or what I'm looking for.

     

    Questions:
    1. Is there an order of preference for the backdoor Roth, 403b and 457? From what I understand the Roth is taxed now and the others are taken pre-tax. Because my income (208k) is >36k above the lower end of the 2017 28% tax bracket (153k), I am guessing it does not matter?

    2. Is there a quick primer to understanding whatever fee structures are in place? What qualifies as 'low cost'? I thought it was ~0.1%, but none of these options are less than 0.75% and they all have a 0.5% 'program and administrative charge.' If all these offerings are so expensive, should I be investing elsewhere? Do I have any other way of contributing to a pretax retirement fund? I have a savings account with Charles Schwab... or is there some way to indendently open a 401k with Vanguard?

    3. I can't identify which if any of these are index funds, how do I do that from the information sheets provided?

  • #2
    Your ERs are def on the high side. You said 403b and 403bs can only invest in mutual funds or offer an annuity I believe so that whole list are mutual funds.

    You can't open a 401k independently unless you have 1099 income. If you're able to I'd max out all 3 pots but depends what your goals are. I max out all 3 pots.

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    • #3
      Unfortunately I don't see a single fund on your list that is an indexed mutual fund.  They are all actively managed (which is one reason for the high ERs).  That said, I held American Funds American Balanced for many years in my own 403b, and it performed fairly well.  Because you have a lot more investment space in a 403b (due to higher annual contribution limits), I'd definitely take advantage of that as well as the governmental 457 before doing any investing in taxable accounts.  Even with the high expenses, tax-free growth is hard to beat.

      I'd also plan on fully funding a backdoor Roth (which you could do through Charles Schwab, if you like).

      Comment


      • #4
        Generally, is there any possibility of getting more options (like an index fund) from a particular account? Or are these kinds of things pretty much set in stone? My company employs roughly ~500 people, about 40 or so of which are midlevels or MDs; I figure I can bring it up at our next provider meeting.

         

        And thanks, once I've maxed out the 403/457 it looks like Schwab makes backdoor IRAs a breeze online.

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        • #5
          These are terrible, terrible mutual funds with unacceptably high expense ratios.  Somehow I'm not surprised that Mass Mutual and an Edward Jones guy with just an associates degree are behind this.

          You probably want to inform you HR department and senior leadership at your hospital about the outcome of Tibble v. Edison International.  Even President Trump's labor department went ahead with the fiduciary rule.

          You can't just offer crap investment products with high fees to participants in your retirement plan.  Frankly, the highly compensated executives and administrators at your hospital are getting screwed over by these products and fees even worse than the rank and file physicians due to their higher compensation.  They're losing more money per year to these excessive expense ratios.  (Unless they're getting kickbacks from the plan administrator, in which case there's a whole 'nuther set of problems at your hospital.)

          Comment


          • #6




            Generally, is there any possibility of getting more options (like an index fund) from a particular account? Or are these kinds of things pretty much set in stone? My company employs roughly ~500 people, about 40 or so of which are midlevels or MDs; I figure I can bring it up at our next provider meeting.
            Click to expand...


            It's certainly worth bring up repeatedly!  One reason so many companies have lousy retirement plans is that the employees (most of whom are ignorant about investing) don't push for anything better.

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            • #7




              You probably want to inform you HR department and senior leadership at your hospital about the outcome of Tibble v. Edison International.  Even President Trump’s labor department went ahead with the fiduciary rule.

              You can’t just offer crap investment products with high fees to participants in your retirement plan.  Frankly, the highly compensated executives and administrators at your hospital are getting screwed over by these products and fees even worse than the rank and file physicians due to their higher compensation.  They’re losing more money per year to these excessive expense ratios.  (Unless they’re getting kickbacks from the plan administrator, in which case there’s a whole ‘nuther set of problems at your hospital.)
              Click to expand...


              Would you mind expanding on this a little bit? Don't know if this makes a difference but this is a collection of clinics and aside from board members there's only a handful of executives and a couple dozen doctors.

              Are there specific things about this that are particularly egregious? How could it be much better? Basically how forcefully can I make my case? And is there some point to be made depending on whether he is acting as a fiduciary?

              Comment


              • #8
                A fiduciary normally has a continuing duty to monitor investments and remove imprudent ones.  The Edison case was a unanimous Supreme Court decision back in 2015.  While Edison only dealt with offering retail shares instead of institutional share in a large employer's 401(k), many observers see it as pointing to a broader fiduciary duty on the part of employers to offer prudent investment options in ERISA plans.

                The crappy loaded products that your employer offers probably wouldn't fly if someone sued them.  You don't seem like the litigious sort, and we're all just friends here trying to make the most of our retirement funds.  Of course a lead plaintiff in an open and shut case like this might be rewarded handsomely, but I'm sure you folks in HR will find it in your hearts to do the right thing... :twisted:

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