Need retirement planning help

[NurseKim]

I have a 403b at my work. I contribute very little and my employer doesn't match. I'm not too thrilled with the company, Citistreet, well, it's more the rep we have....Anyways!

 

I was wondering if a Roth IRA would be a better choice for me.

 

A little about us...

I'm almost 30, DH is 30. We have 2 boys, almost 3, and 1. DH is a police officer and has a pension through the city and also a deferred comp plan. I can't remember what he contributes.

I work part-time as an RN. My hospital has a penison plan but I'm not 100% vested in it...I think I have 5 more yrs before I am.

 

I heard a rumor that my hospital might bring in Fidelity as an alternative to the Citistreet (Our only option right now.) How are they?

 

I'm not too savvy re: retirement planning.

 

I'm not too worried about saving for the boys' education. There are loans to help them, but no one will give me a loan for retirement (Thx Suze Orman!)

 

I also plan on opening an ING acct. We have a good chunk of $$ in our regular savings.

 

Any advice is appreciated! Thanks!

[hegemony]

WITH A roth YOU are using money that you've already paid income tax on. with the 403b you are saving pretax money; i.e. it reducing your taxable income NOW. The 403b is a good idea if you think you're tax bracket in retirement will be lower than it is now.

 

frankly most people need both the 401K/403b and ROTH.

 

ultimately you need to research what is best for your situation. clark howard has some good advice on his website. you also should go to the library or subscribe to smartmoney.

Edited June 20, 2006 by hegemony

[54regcab]

The median family w/2kids making $40K (40K is the national median, not sure what you make) is normally in a low tax braket therefore will normally be better off with a Roth since the tax break now won't help them much anyways.

 

Also consider investment choices, you have a much better selection in the open market with Roth's than with a company plan.

 

I normally reccommend doing it this way:

1: 401k/403b to the match (if you get one)

2: Roth to $8,000 ($4K each)

3: Any extra in 403b

Edited June 21, 2006 by 54regcab

[Cruise, J.D.]

I normally reccommend doing it this way:

1: 401k/403b to the match (if you get one)

2: Roth to $8,000 ($4K each)

3: Any extra in 403b

 

I agree. For most people it would be better if you don't have a match in your 403b to max the Roth before contributing anything to the 403b.

Edited June 21, 2006 by Cruise, J.D.

[artglazz]

Agree with 54Reg. DW has a 403B with her employer contributing with no match required, which is nice. Everything else goes into the Roth's and other investments/savings/etc...

[NurseKim]

Thank you for your replies. I checked with HR and they don't match employees who were hired before oct '03, which is me...not sure why...maybe those employees hired after Oct '03 aren't in the pension?

[df21084]

If you employer doesn't match, then fund the Roth first. Once that's fully funded, contribute to the 403b.

Edited June 22, 2006 by df21084

[hegemony]

If you employer doesn't match, then fund the Roth first. Once that's fully funded, contribute to the 403b.

don't you think we need to know their tax bracket first?

[54regcab]

If you employer doesn't match, then fund the Roth first. Once that's fully funded, contribute to the 403b.

don't you think we need to know their tax bracket first?

 

Actually Hege we need to know current tax bracket, tax bracket when retired, and how good the 403b options are. Generally most people are better off with a Roth instead of a unmatched employer plan.

[df21084]

If you employer doesn't match, then fund the Roth first. Once that's fully funded, contribute to the 403b.

don't you think we need to know their tax bracket first?

 

Probably not. Assuming the Roth is an option, there are myriad advantages to it versus a 403b where the employer gives no free money.

 

Now, if you're there's a real possibility of getting shafted by the AMT that pre-tax contributions would avoid, then that would be a horse of a different color.

[hegemony]

If you employer doesn't match, then fund the Roth first. Once that's fully funded, contribute to the 403b.

don't you think we need to know their tax bracket first?

 

Probably not. Assuming the Roth is an option, there are myriad advantages to it versus a 403b where the employer gives no free money.

 

Now, if you're there's a real possibility of getting shafted by the AMT that pre-tax contributions would avoid, then that would be a horse of a different color.

so you think reducing one's tax exposure is not important? I contribute to 2 additional pretax retirement vehicles (beyond my 403b) in order to reduce federal tax exposure (not too mention we don't qualify for a ROTH). I like paying less taxes now. Most people will have a LOWER tax bracket when they retire.

[Mike89]

What are the fees for the 403b? Most 403b plans have exceptionally high fees in the range of 1.5-3% per year.

[hegemony]

What are the fees for the 403b? Most 403b plans have exceptionally high fees in the range of 1.5-3% per year.

for mine? no fees, my primary 403b is all no-load funds. ETA: highest expense charge of the funds held within it is .63%

Edited June 23, 2006 by hegemony

[Mike89]

for mine? no fees, my primary 403b is all no-load funds. ETA: highest expense charge of the funds held within it is .63%

 

You are one of the lucky ones. Most people that have 403b's get stuck with an annuity option. The fund fees might not be bad but than you get hit with all types of other expenses such as a death fee, adviser fee, 12-1b fees, etc. These fees are so hidden most people don't even know about them. It's a shame the insurance industry and large banks created this racket with 403b's.

[hegemony]

for mine? no fees, my primary 403b is all no-load funds. ETA: highest expense charge of the funds held within it is .63%

 

You are one of the lucky ones. Most people that have 403b's get stuck with an annuity option. The fund fees might not be bad but than you get hit with all types of other expenses such as a death fee, adviser fee, 12-1b fees, etc. These fees are so hidden most people don't even know about them. It's a shame the insurance industry and large banks created this racket with 403b's.

my other accounts do have some funds with 12-b fees.

[radi8]

other expenses such as a death fee,

 

 

 

You aren't kidding are you. They charge if you die?

[hegemony]

for the mandatory 401a (yes it is mandatory and yes I always forget it is not technically a 403b) and it is an annuity option (unfortunately). It is mandatory because we do not pay SS.

 

we get the choice of three companies to have our account with: TIAA-CREF, VALIC, and Fidelity Investments. We can also split the contributions to have, say 50 percent to one of the companies and 25 percent to each of the other. I have 100 percent with the company with the lowest expenses. There is no death fee or junk management fees.

 

The expenses for the account is lower than my spouse's 401k, where they have no choice of companies.

 

We used to fund roth's but no longer can. Outside of the retirement vehicles we have several mutual funds and of course a high interest savings account.

Edited June 23, 2006 by hegemony

[Mike89]

You aren't kidding are you. They charge if you die?

 

It's actually called a mortality and expense fee usually seen in 403B plans that contain variable annuities. It's an annual fee ranging from .2-1.5% of your total account value. This fee is on top of all the other fees and is just a cash cow for the company.

 

Heg is one of the lucky ones because he gets to choose from three of the best companies that offer 403b plans. The people in my area seem to get stuck with companies like AXA.

[54regcab]

Gosh, and I thought I was getting hosed at my last job on my 401K fees. Makes me even more convinced the low fee Roth is the way to go.

[df21084]

If you employer doesn't match, then fund the Roth first. Once that's fully funded, contribute to the 403b.

don't you think we need to know their tax bracket first?

 

Probably not. Assuming the Roth is an option, there are myriad advantages to it versus a 403b where the employer gives no free money. And if the 403b only offer annuitys, then run like a scalded dog to the Roth.

 

Now, if you're there's a real possibility of getting shafted by the AMT that pre-tax contributions would avoid, then that would be a horse of a different color.

so you think reducing one's tax exposure is not important? I contribute to 2 additional pretax retirement vehicles (beyond my 403b) in order to reduce federal tax exposure (not too mention we don't qualify for a ROTH). I like paying less taxes now. Most people will have a LOWER tax bracket when they retire.

 

I never said that reducing tax exposure wasn't important. However, the spouse is already in a deferred comp program at his job, and the 403b is taxable upon withdrawal. The Roth isn't, assuming a few simple rules have been followed, and assuming Congress doesn't change the laws. Additionally, the investment options in an IRA are most likely better than in a 401k/403b, because most 401k/403b plans are too conservative in their investment choices.

 

It obviously depends on their particular situation. If putting a grand or two drives their current tax bracket lower, then by all means do it. However, in the vast majority of cases, the Roth wins because, at 59-1/2, the contributions AND earnings are non-taxable when you will more than likely really need the cash.

 

In my situation, I contribute to my employer's 403b plan because they match 50 cents on the dollar up to 5%. After 5%, I fund my Roth, and then switch back to the 403b. In my case, the 403b fees are very low, but the investment choices suck. Mutual funds only, and not a very big selection. Luckily, I can link a brokerage account to my 403b and transfer funds from the 403b to my brokerage account. I still can only invest in mutual funds (ie: no EFTs or individual stocks, etc.), but the fund universe is vast. This is through Fideilty. Fidelity offer myriad "No Transaction Fee" funds.

 

It's a shame you can't contribute to a Roth. Hopefully the rules will change.

 

Regardless, save as much as possible in either a 403b or Roth, because the alternative means getting the shaft.