<p>Since my D landed a teaching job I started to teach her about her investment opportunities. She brings home the 403B literature and it is the worst selection of high fee funds and annuities. So I google teachers 403B funds and apparently this investment vehicle is a universally poor way for teachers to invest. Why do teachers stand for it. There are a number of low fee companies available why do teachers stand for only having poor choices?</p>
<p>That said I am considering having her look into a Roth IRA instead of the tax deductible 403B. This will supplement her pension. She pays 7% for the pension and she was going to do 8% in the 403B or Roth.</p>
<p>I am a recently retired teacher. I contributed to a 403b for the bulk of my teaching career. It was an excellent way to supplement my retirement AND to reduce my taxable income. Right now your daughter probably doesn’t care about the eltax benefit to having a 403b, but if she marries and/or her income increases, she might very well be happier with the tax advantage the 403 b has now. </p>
<p>Our plan had many options of investments. I would suggest your daughter talk to the 403b representative to see what the options are. Sometimes the literature isn’t as helpful as a human being.</p>
<p>agree with thumper1—my 403b has performed unbelievably well. I was able to lock in some great interest rates, as it was clear I would not be touching the money for many years. And the tax benefit to boot.</p>
<p>Tom1944—your daughter should shop around–some are definitely better than others. She probably got literature from a sales rep who is soliciting business at the school.</p>
<p>There isn’t one 403b option for all teachers. Her district , or the regional service area, will have contracted with companies to administer the funds. In a small district, like with a small employer, choices may not be ideal. You might want to help her compare her choices with 403b and Roth and other savings vehicles.</p>
<p>tom1944-
I can relate. Our son just started his second year teaching. He was so immersed in learning his way around last year that he put the whole 403b thing on the back burner.
Now he’s trying to figure out what his options are. Also, asking me to share what I know since he knows I’ve used a 403b as a healthcare employee over many years.</p>
<p>I second the idea of talking with the rep for his plan. As long as you remember they’re salesmen, they can help. And since son also has a very small Roth IRA opened about 5 years ago with Vanguard, he will consider funding that option after his pension contribution as well.</p>
<p>Congrats to your daughter in landing her teaching job!</p>
<p>I am sure there are many districts with good plans but the seem to be rare if you Google. Kiplingers. WSJ and USA Today as well as several others have articles.</p>
<p>I will ask her to see if there are any other options than the two firms she got packets from.</p>
<p>musicmom-thanks. She worked hard to land a job.</p>
<p>If the options are truly hideous, she may want to encourage her school district to find out about TIAA-CREF. Many colleges/universities and educational non-profits have their 403b money there. I expect that schools should be able to do so as well.</p>
<p>Are there matching fund from the district in the 403B? Our district does not match the 403B dollars but does match the pension funds-which are required on the teacher’s part, 10% contribution with a 6% match. If there are no matching funds, I agree that contributing to a Roth while she can is usually a good idea.</p>
<p>tom - First things first … Congrats to your D on landing that job!</p>
<p>Second things second … one can’t retire unless money’s been set aside. A pension is good of course. But the reality for most young adults is that they’ll need to set aside some of their own money as well.</p>
<p>And third things … I’d encourage your D to get that Roth IRA going. She doesn’t need a tax break at this point, so Roth beats the 403b (which will be subject to ordinary income tax rates at distribution). The only exception would be if there is an employer match for the 403b, in which case it might make sense to go for the “free money.” (I’d still recommend fully funding the Roth.)</p>
<p>I would also suggest she look into the low-cost and free life insurance policies offered to new teachers through NEA, CTA, AFT and other teacher’s unions. Some of the policies only allow you to sign up when you first get hired.</p>
<p>I don’t know of any public school districts that match 403b contributions. Matching private retirement contributions is something done by private employers, not public schools.</p>
<p>There are some districts that pay for annuities for their administrators, but honestly I’ve never heard of this being done for teachers.</p>
<p>I will say… No your daughter does not need the tax advantage now. But I sure do with <em>I</em>had fully funded my 403b sooner than I started. The more you get in sooner, the better. Yes, a Roth is good too and there are some advantages to having that.</p>
<p>I started my 403Bs when I was hired (1991). Maybe they aren’t the best investments, but I have over $250,000 now that I wouldn’t have if I hadn’t started putting the money aside back then. It comes off the top of the paycheck so I don’t notice it. You can borrow against it, too.</p>
<p>There is no match. Since she will pay 7% for her pension and over 7% for social security she is only going to put 8% in either a 403b or the Roth. She loses the tax advantage by not doing the 403B but avoids the high fees. </p>
<p>She will invest in something like the Vanguard Total Stock Market Fund and dollar cost average</p>
<p>I work for a public educational entity–not a school district–and I get very generous matching funds for my 403B. Also, there is a very basic fund that has absolutely no fees, not now, not later. It has a low rate of return but it has a minimal guarantee, so the principal cannot be lost. There are many other funds to invest in and I am not sure about their fees. For my situation now, I needed “safe.”</p>
<p>My employer has a rep from the financial sector who manages enrollment. At first she emailed me some brochures but it was really through talking with her on the phone and then arranging a meeting that I understood all my options, fees, etc. I was reluctant at first, because she is getting a commission on the investments, but she was not high pressure and nowadays they have to ask about and document your chosen investment strategy and how it matches what they set you up with.</p>
<p>thumper1–I will say the opposite that I have never heard of a school district that doesn’t match either the pension fund or the 403B.</p>
<p>tom1944–since there is no match, I would do the Roth. Sure, she could save a little in taxes with a Traditional IRA, but in the long run she will probably save more with the Roth. Also, 403B’s tend to have long vesting periods or a long time before they can roll it into another account and with a new teacher, that is a concern. She will have more control and more flexibility with the Roth dollars. I would strongly suggest she sit down with a good financial planner and educate herself on how all this works, how to pick funds, etc. I would also make sure she has a private disability plan in place and as much life insurance as she can afford right now because she is young and it’s really cheep for her now. Get the money into the investments and insurance before she is used to having that money–along with funds going into an emergency fund.</p>
<p>In our NY district it depends on what tier you are in terms of contributing to pension. For 403b it depends on the district as others have said. I can say for certain that the public outcry would be heard around the world if tax payers dollars were used to match 403b contributions!
We have some reps who come and introduce their mostly annuity plans but if a company is on the “list” then you can set a 403b with them. A few years back there was a big change in how the plans needed to operate and companies had to Agree. For awhile Fidelity and Vanguard were not on the list. Apparently what hoops they had to jump through we’re many. But the loss of clients would have been worse. Bottom line it is very district dependent. For their ease I would guess some would choose a one size fits all approach to lessen paperwork.</p>
<p>I heard this a while ago, but I think it still works:</p>
<p>Chose the Money Market option in the 403(B). It will have the least fees (if any). You get the benefit of the pre-tax deduction.</p>
<p>Open a rollover 403(B) with Vanguard (or the fund family of your choice).</p>
<p>Periodically, rollover the 403(B) at her Employer’s plan to the Vanguard plan.</p>
<p>I believe this works because there are no restrictions on rollovers from 403(B)'s, like there are with 401(K)'s (have to stay in the employer’s plan until you separate).</p>