Looking for some guidance for retirement investing.

[drpq]

Morning all. I’m newly out of fellowship and trying to wrap my head around the wide variety of options for investing in my retirement without using a financial planner. As far as I can tell, financial planners just zap growth and dont add much once you understand how it all works and formulate a plan.

I am currently a W-2 university employee. I max out my 403(b) contribution, university retirement plan and “optional retirement plan”. My understanding is that all combined retirement contributions max out at $56,000. I am not sure if that includes the employer contribution or not.

Where I am getting tripped up, is the “best” method for investing in my retirement. When I say that, I mean considering all additional options: governmental 457(b), backdoor roth, and just individual investing in ETF, real estate and other investments.

I have not yet setup my 457(b), which as I understand it is a pre-tax contribution taxed on retirement withdrawals. I believe I can max this out at 18,500.

The other consideration is the backdoor roth which would be 5500 for me and 5500 for my spouse. It’s not clear to me if the backdoor roth counts as part of the “$56,000” max annual retirement contributions or not.

And if I can get a better return on investing on my own, for example vanguard VNQ ETF which has average 18% annual growth over the last decade, is it even worth putting money in a 457(b) or roth IRA? I realize you loose the pre-tax benefit, but you have more control over where your money goes.

[jfoxcpacfp]

You have packed a lot of food for discussion in your post and you have several misconceptions, but that's expected when you're just starting out. The interaction of choices is confusing.

Please provide more info on your "university retirement plan" and your "optional retirement plan" (code section).

You can contribute $19k, not $18,500, in 2019.

Backdoor Roth's do not count toward the $56k limit. $5,500 each for 2018, $6k each for 2019.

I'll let others add their opinions over some of your other thoughts, including where you can "get a better return".

Welcome to the forum!

(ZAP!!!)

[PhysicianOnFIRE]

You've clearly done some reading, but there are few things that need to be cleared up.

The 401(k) is limited to $56,000. $19,000 as an employee contribution and up to $37,000 as an employer contribution. Some plans will allow non-deductible contributions from the employee up to the $56,000 max.

The 457(b) is separate. That's different than your "optional retirement plan"? The max in the 457(b) is now $19,000,  and since it's a governmental one, it's a lot like a 401(k) with the added bonus that you can start withdrawing at any age once you separate from your employer (i.e. quit / retire / leave).

As Johanna mentioned, the backdoor Roth is in addition to those, and the 2019 limit is $6,000.

I recommend maxing out tax-advantaged options, including an HSA if a high-deductible health plan makes sense for you and your family. After that, additional money, if you have any can go to a taxable brokerage account with ETFs and mutual funds, 529 Plans, real estate, etc...

Note that most retirement plans will have a wide range fund options, often including an REIT fund like VNQ. Note you would not want to hold REITs outside of a tax-advantaged account because they are not at all tax-efficient. I hold the mutual fund equivalent of VNQ in my Roth IRA.

My two-part series may help you.

• Investing Basics for Physicians With Little Time or Experience, Part I


• Investing Basics for Physicians With Little Time or Experience, Part II

 

WCI has a Beginners series, as well.

Cheers!
-PoF

[JBME]

also worth noting your 457b plan is pre-tax (most likely) and provides you with another bucket to save up another $19k this year.

Also, past performance isn't an indicator of future performance. Look at the expense ratios of the funds you choose. Anything under .20 is great, .21-.5 is fine, anything above .5 isn't great.

You still have time, until April 15, to contribute to your and your wife's Roth IRAs (via the backdoor) for your 2018 contributions. That limit, as Johanna said, is $5500 per account. This year, 2019, it's $6000 per account.

 

You need to sit down with your spouse and figure out your asset allocation and how much risk you are willing to take. Then we figure out, across all of the retirement vehicles you have, where to properly disperse that allocation

[ENT Doc]

drpq wrote:

And if I can get a better return on investing on my own, for example vanguard VNQ ETF which has average 18% annual growth over the last decade, is it even worth putting money in a 457(b) or roth IRA? I realize you loose the pre-tax benefit, but you have more control over where your money goes.

Click to expand...

Whoa, nelly.  Don't get suckered into past returns.  You are confusing asset allocation (stocks/bonds/real estate) with tax-efficient placement/decision-making.  The whole reason people advocate for 401ks and 457bs is because it's tax efficient to do so (for high earners).  Same thing with doing a backdoor Roth - the money would otherwise go into a taxable account which is less tax efficient than putting it into an account (Roth) that will never be taxed.

As for asset allocation you need to decide what your risk comfort is.  And then broadly diversify within each category.  For example, are you all 80% stock/20% bond people or are you 60% stock/40% bond people?  And regardless of what you pick make sure that you're not all in on something like VNQ simply because of past returns.  That's a good way to yield lower future returns.

[jhwkr542]

drpq wrote:

I am currently a W-2 university employee. I max out my 403(b) contribution, university retirement plan and “optional retirement plan”. My understanding is that all combined retirement contributions max out at $56,000. I am not sure if that includes the employer contribution or not.

The limits depend on what these plans are.  My guess is that university retirement plan = 401a??? Maybe?  Optional retirement plan = 457b???

The max contributions vary.  For all 401ks and 403bs, you get an employEE maximum yearly contribution of $19k for 2019.  The remaining $37k up to the limit can be either done from employER contributions like via match or after-tax employEE contributions that then allow in-plan Roth conversion and withdrawals (latter called mega backdoor Roth).  A lot of plans don't have the mega backdoor Roth availability, so after you put in your employEE max, you probably won't be able to get up to the full $56k.  The 401a is usually mandatory contributions put in by you and/or university.  The 457b limits are separate from the 403b contribution limits, so you can put in another $19k employEE contribution.

I mean considering all additional options: governmental 457(b), backdoor roth, and just individual investing in ETF, real estate and other investments.

Do tax-advantaged accounts before taxable/brokerage account, so fund the 457b and backdoor Roth first.

I have not yet setup my 457(b), which as I understand it is a pre-tax contribution taxed on retirement withdrawals. I believe I can max this out at 18,500.

Correct, except $19k max for 2019.

The other consideration is the backdoor roth which would be 5500 for me and 5500 for my spouse.

Max is $6000 for 2019, and you should do it.  If you have the cash, you have 12 days to do it for 2018.  You'd have to file form 8606 for 2018.

It’s not clear to me if the backdoor roth counts as part of the “$56,000” max annual retirement contributions or not.

It does not.

And if I can get a better return on investing on my own, for example vanguard VNQ ETF which has average 18% annual growth over the last decade, is it even worth putting money in a 457(b) or roth IRA? I realize you loose the pre-tax benefit, but you have more control over where your money goes.

Click to expand...

Past performance is not indicative of future results.  I doubt you'll see 18% returns from this fund over the next decade since it started near the bottom of the housing crisis.

[drpq]

Thank you everyone for your insightful responses. I'll read the links that have been shared and post if (i.e. when) I have more questions. Cheers.

[SLC OB]

jhwkr542 wrote:

My guess is that university retirement plan = 401a??? Maybe?  Optional retirement plan = 457b???

Click to expand...

Question....

I am moving to a W2 situation soon... at the same place that my husband is a W2 (I've been there but just as a 1099).

He has a 457 (not sure if it is a "b" or not) where he contributes his $19K

He also has a 401a, where the employer contributes and he can contribute post-tax up to 10% of each of his paychecks (which we roll into his Roth quarterly, i.e. the Mega Backdoor Roth)

So my question....

Do you think he should be able to put another $19K in the 401a?

Will I be able to put 10% of my post-tax income (which, if you include the employer match, which should be about $32K)? Would it matter that it would go over the 56K?

 

Thanks in advance!

[Peds]

SLC OB wrote:

Do you think he should be able to put another $19K in the 401a?

Click to expand...

you can do up to 56+catch up

SLC OB wrote:

Will I be able to put 10% of my post-tax income (which, if you include the employer match, which should be about $32K)?

Click to expand...

what does your contract say?

SLC OB wrote:

Would it matter that it would go over the 56K?

Click to expand...

yes, you only get 56+catch up

[SLC OB]

Peds wrote:

you can do up to 56+catch up

Click to expand...

But is that post-tax or could he put in another $19 pre-tax?

Peds wrote:

what does your contract say?

Click to expand...

I don't have one yet... just got the raw numbers and the person I spoke to does not explain the retirement stuff well at all. So trying to deconstruct from my husbands plan through same employer. The amount of employER contribution for him into the 401a is about $9100 but mine would be about $31K. So wondering if I can use the rest of the "space" in the 401a to put another $19K (pre-tax) or and the rest from post-tax up to $56K while I still have contributed $19K in the 457. Is that clear as mud?

Peds wrote:

yes, you only get 56+catch up

Click to expand...

Unfortunately, I am too young for catch up (that's 50, right?). Is the $56 total between 401a and 457 or separately?

Thanks in advance!