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Roth Ira or 403b

J.T 876 52 August 3, 2015 at 03:39 PM
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At school today Edward Jones bought pizza for the entire teaching staff. They would like us to open/invest in a 403b account with them. I currently have a roth ira accat with vanguard. They made it sound like if you don't invest with them, 'you will not have a life after teaching besides working at wal-mart or kmart.
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#2
Quote from J.T View Post :
At school today Edward Jones bought pizza for the entire teaching staff. They would like us to open/invest in a 403b account with them. I currently have a roth ira accat with vanguard. They made it sound like if you don't invest with them, 'you will not have a life after teaching besides working at wal-mart or kmart.
Thanks
Does your employer make matching contributions to the 403(b)? If they do then that's basically free money you are not getting.

If not then it's not quite as clear cut. Are you in a higher tax bracket where you would benefit but reducing your taxable income by contributing to a 403(b) rather than a Roth IRA?

What are your views on current tax rates? Do you think you will be in a lower tax bracket in retirement, then contribute to 403(b) [wait to pay the tax when retired]. If you think you'lll be in a higher tax bracket when retired then fund the Roth IRA.

I have this argument with a friend/mentor quite often. He emphasizes taking the tax break now (with 403b or 401k or trad IRA) while I advocate paying tax now and not worrying about it in the future (with Roth IRA).

To break it down, if you have a high income (25% tax bracket or so) and Edward Jones has some nice low cost options (ER<0.2%) I would go ahead and start using the 403b. If you aren't a high earner and/or Edward Jones has expensive funds or high fees, just stick with the Roth IRA at Vanguard.
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#3
Usually with financial stuff there is quite a bit of gray. But in this situation, there isn't much. All things being equal, such as no employer match, there is no comparison between a Roth IRA and a 403(b).

403(b) plans - oftentimes managed by insurance companies who have bought off Washington - are some of, if not, the worst retirement plans in the country. They are riddled with hidden ripoff fees.

TIAA-CREF is one of the very, very few companies that offer low cost 403(b) plans. If your plan was managed by them, then we'd be able to compare apples-to-apples. But, unfortunately, it's managed by a insurance company.

Fortunately, though, you have a Roth IRA that you can contribute to.

Might your school district also offer TIAA-CREF as an option?
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#4
Any time an investment company has to throw a pizza party (or hog roast, or similar) to try to attract customers, you know it's a bad deal. EJ's current customers are paying for that pizza as well as the salesman's time.

*Edit*
Yes, if the only way to get an employer match is to invest with EJ, then it could still be worthwhile. All brokers charge fees, but the fees that you pay should go towards fund administration and nothing more.
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Last edited by dhc014 August 5, 2015 at 10:08 AM
#5
403b I believe is just like a 401k. It's all good.

Currently you are doing a Roth IRA (which is AMAZING, in my opinion... I do a self directed on with an online broker, I love it)

But a Roth IRA is only good for $5,500.00 per person (one for you and one for your spouse... ) Ideally you should be saving a lot more then that.

I don't know your age, but the younger you are the better a ROth IRA is IMHO.

RULE of thumb is....
1. Do company (school) match in a 401k (in your case a 403B), if no company match then do nothing in this step.
2. Max out your ROTH IRA ( a MUST)
3. You should be saving 17% of your salary... I KNOW this is a lot... sorry, life is expense. So if 17% of your salary is lets say $9,500 for example, and your company does NO match then you should do $5,500 in a Roth IRA and $4,000 in the 403B... again this is just IMHO. Now lest say they match your first 5%... then you should do the company match then $5.5K in ROth IRA and then even more in your 403B.

Again, this is just my opinion but it is a good one.
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#6
A benefit of employer plans such as a 403(b) is the money that goes into the account is done so on a before-tax basis. With a Roth IRA, the money used to fund the account is on an after-tax basis.
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#7
Quote from dhc014 View Post :
Any time an investment company has to throw a pizza party (or hog roast, or similar) to try to attract customers, you know it's a bad deal. EJ's current customers are paying for that pizza as well as the salesman's time.
+100. I was going to say the exact same thing.

If an investment company (mutual fund, etc.) is paying money for advertising in any way (free pizza, TV/Radio commercials, etc.), that is money being taken from existing investors to cover the costs of getting new blood. In the end, all you should care about are the results they bring.

The same goes for all those for-profit colleges.
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#8
Quote from Davidwilson12 View Post :
A benefit of employer plans such as a 403(b) is the money that goes into the account is done so on a before-tax basis. With a Roth IRA, the money used to fund the account is on an after-tax basis.
so what is your point?
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#9
Quote from phonic View Post :
+100. I was going to say the exact same thing.

If an investment company (mutual fund, etc.) is paying money for advertising in any way (free pizza, TV/Radio commercials, etc.), that is money being taken from existing investors to cover the costs of getting new blood. In the end, all you should care about are the results they bring.

The same goes for all those for-profit colleges.
This could be the company that administers the 403b.

I am assuming there are multiple choices to invest your money into.

This is a 403b... you may have a 401k, it is basically the same thing. Don't through away your future casue of a pizza party!!!
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#10
Quote from joshuaNH View Post :
This could be the company that administers the 403b.

I am assuming there are multiple choices to invest your money into.

This is a 403b... you may have a 401k, it is basically the same thing. Don't through away your future casue of a pizza party!!!
There are many ways you can get screwed over in investments. Just one of them is the underlying funds (which of course have dozens or more ways to do it.... ERs, loads, etc.). Then your brokerage company or account admins tack on their own fees. For example, our 401k provider (John Hancock) adds about a .5% ER to the underlying funds. It varies depending on how high the fund's ER is -- the lower it is, the higher they make their own. So that nice index fund that normally costs 0.16% is now 0.66%. They're making more than the fund administrators. And don't forget general administrative account fees, etc. Depending on how the accounts are setup, it makes it easier to hide these fees from less savvy consumers.

So the point still stands.

I'm not saying not to utilize them, I'm simply saying do your homework and understand how that pizza is being paid for.
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Last edited by phonic August 5, 2015 at 08:04 AM
#11
Quote from phonic View Post :
There are many ways you can get screwed over in investments. Just one of them is the underlying funds (which of course have dozens or more ways to do it.... ERs, loads, etc.). Then your brokerage company or account admins tack on their own fees. For example, our 401k provider (John Hancock) adds about a .5% ER to the underlying funds. It varies depending on how high the fund's ER is -- the lower it is, the higher they make their own. So that nice index fund that normally costs 0.16% is now 0.66%. They're making more than the fund administrators. And don't forget general administrative account fees, etc.

So the point still stands.

I'm not saying not to utilize them, I'm simply saying do your homework and understand how that pizza is being paid for.
I understand your fustration over the admin fees. I get charged $16 per year... does that make me happy.. HELL NO, but my 401K is now worth $$$$ and that does make me happy.

If you read my first post... I stand by it... 17%
1. First do Match
2. Then do ROth IRA
3. Add to the 403b (or 401K).

What you are talking about is small IMHO with the benifit of investing before TAX and letting it accumalte.
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#12
Quote from joshuaNH View Post :
I understand your fustration over the admin fees. I get charged $16 per year... does that make me happy.. HELL NO, but my 401K is now worth $$$$ and that does make me happy.

If you read my first post... I stand by it... 17%
1. First do Match
2. Then do ROth IRA
3. Add to the 403b (or 401K).

What you are talking about is small IMHO with the benifit of investing before TAX and letting it accumalte.
You seem to be wanting to argue with me about something I never said, implied or insinuated. If you read my first post, you will see that we are not talking about the same thing. So you can stop trying to convince me to take advantage of retirement accounts, thinking that I am against them somehow -- an assumption that is false. Smilie

My only point, which is still valid, is that investments, brokerages, etc. that try to convince you to use or invest in them, by using marketing or other gimmicks, are usually not the ones you want to put your money into if you have the option. If you see a fund on TV, it's wasting your money on 12b1 advertising.

Regarding the investment allocation, while that may be good for you (and is the standard recommendation for most poeple), some components depend on the individual circumstances. The OP has not provided enough details about his situation to give specific advice. He hasn't mentioned if his employer does match or not. Or what his current income/tax bracket is now or will be in the future. Yes, you should always take advantage of employer match if available -- it's a no brainer even with horrible fees/options. That's always step #1 if there is a match. But the rest depends on other factors, specifically whether you should be doing pre- or post-tax now (part of which is math the other is belief in the future state of the economy), whether you can make qualified IRA/RothIRA contributions (depends on income) directly or if you would need to use a 401k/403b instead. Outside of match, I would personally rather contribute to an IRA versus my 401k (better options), but my income doesn't allow me to make tax deductible IRA contributions since I am offered a 401k, so I need to put those into a 401k for the tax deduction. I do however max out the Roth IRA since the rules are different. But the OP might be in different circumstances. Again, it depends and he would need to provide more information than what he has.

For example, if the OP is single, has an employee match, has an AGI <$66k/year and believes he will be in a lower tax bracket in retirement versus now, he may prefer (and qualifies to contribute) to an IRA versus a Roth. In that case, his order of preference would probably be:
1) Full match into 401k.
2) IRA Contribution up to $5500 (not Roth)
3) Remainder into 401k/403b

The IRA and 401k/403b would be taxed the same (deferred) but the IRA would likely (not always, but likely) give him better options.

If he makes >$71k as single or $118k as married, the non-Roth IRA option is no longer there, and he would need to decide whether to do a Roth IRA or 401k, or both, and determine the best allocation for him.
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#13
Quote from joshuaNH View Post :
I understand your fustration over the admin fees. I get charged $16 per year... does that make me happy.. HELL NO, but my 401K is now worth $$$$ and that does make me happy.
A $16 per year admin fee is not too bad as long as the funds' expense ratios are good. My company just announced some changes to our 401k plan (managed by Vanguard) including the addition of a fixed $41 annual admin fee. At the same time, we are gaining access to Vanguard's Target Retirement Trust funds with a 0.11% reduction in the ER compared to the regular TRD funds that we had previously. Anyone with a balance of more than $37,272.73 holding a TRD fund will recuperate that $41 fee. We're also going from Institutional to Institutional Plus class shares of Vanguard's S&P 500 fund. That cuts the ER in half from 0.04% to 0.02%. You'd need a balance of $205,000 in the S&P fund to recuperate that $41 fee.
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#14
Are Roth IRA's included in the maximum contribution limits from the IRS? e.g. tot sum of all retirement deferrals cant exceed $18k (2015) but the IRS website only lists 401k, 403b, and "SIMPLE IRA":

http://www.irs.gov/Retirement-Pla...nt-Plan%3F
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#15
Quote from Dr. J View Post :
Are Roth IRA's included in the maximum contribution limits from the IRS? e.g. tot sum of all retirement deferrals cant exceed $18k (2015) but the IRS website only lists 401k, 403b, and "SIMPLE IRA":

http://www.irs.gov/Retirement-Pla...nt-Plan%3F
No, the IRA/Roth max of $5500 is exclusive of 401k type contributions.
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