403b plan investment options

403b plan investment options

Author: SneganKA Date: 23.05.2017

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Make the Most of a (b) Retirement Plan

By Kimberly Lankford , Contributing Editor June 30, We sometimes hear from teachers who complain that our retirement-planning advice, which often focuses on k plans, ignores their needs. That's because most teachers have b retirement plans, which have tax-deferral rules similar to k s -- and a similarly geeky label drawn from the tax code -- but are otherwise very different.

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Special Report on Understanding Annuities. These teacher-retirement plans often limit their offerings to insurance products, such as annuities, and they charge much higher fees than k s. But the biggest difference is the way b plans are sold. Scott Dauenhauer of Murrieta, Cal. The Dauenhauers called the school district to find out more about the b options and were sent a list of about 30 company names and phone numbers.

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The precursor to the b plan was created in as a pension replacement for higher-education workers. Many such large plans still offer fixed annuities that can provide lifetime income, plus they include mutual funds from low-cost providers such as Fidelity, Vanguard and TIAA-CREF. Most are subject to the same fee-disclosure rules as k s.

But the b marketplace for elementary and high school teachers in public schools is frequently described as the "Wild West" because of the lack of oversight. That's partly because these plans were intended to supplement defined-benefit pensions. Most school systems with pension plans that promised retirement income didn't get involved in b offerings. Since the Dauenhauers discovered the paucity of good choices in Shauna's b , Scott, a certified financial planner, has become an advocate for lower-cost options and more disclosure.

403b plan investment options

Regulations that took effect in require school systems to keep better records of the b s being offered to their teachers. Now that many have adjusted to the new rules, they're considering additional steps to improve disclosure and review product offerings. Several states are voting on laws this year that could make it easier for school systems to negotiate fees and take more control over their b choices -- which could help attract more low-cost providers.

Vanguard and Fidelity are expanding into K school systems, too. Tracy Callard, a year-old elementary school teacher in Wichita, Kan.

She had been happy with a low-cost b from TIAA-CREF when she taught at a private school. But when she shifted to the public school system in , she was disappointed that none of the familiar low-cost companies -- such as TIAA-CREF, Fidelity and Vanguard -- were on the list of available b s.

Instead, the list of 14 approved vendors was dominated by insurance companies selling annuities. Callard has lobbied her school system to add more low-fee providers to its b list, and she serves as a representative for her school to the teachers' union.

403b plan investment options

She's also working with Dan Otter, a former teacher and longtime b advocate who created bwise. Until then, she and her husband, Mark Barfield, a public-school history teacher, max out their Roth IRAs instead of investing in the b. Because their school system doesn't offer a b match, they're not missing out. They also invest in taxable accounts, buying and holding stocks to complement the guaranteed income they'll have in retirement from their pensions.

Your b contributions lower your taxable income, then grow tax-deferred until retirement. Some employers also offer Roth b s, which offer tax-free withdrawals in retirement. Some hospitals and colleges match b contributions, but most K public schools do not. If your employer matches your b contributions, invest at least enough to get the full match -- that's free money. But before you put all your retirement money into a b , do a little digging:. Compare investment choices and fees.

The range can be huge. Some plans have fees as high as 2. But others, such as Vanguard, may offer a target-date fund a diversified portfolio that gradually gets more conservative as your retirement date draws near with a 0.

TIAA-CREF charges from 0. More plans now let you invest directly in a large menu of mutual funds, including target-date funds. If you'd like more personalized help, some companies, such as Valic, also offer managed accounts for their b s. Understand annuity guarantees and expenses.

(b) Plans Simplify Investment Choices | The Principal Financial Group

Some b s -- especially for K teachers -- offer nothing but annuities. If you want to invest in mutual funds, you may have to do it through a variable annuity offered by your plan, which can add an extra layer of fees. You can get helpful information from the tool at bcompare.

If you are paying extra for an annuity wrapper, ask what you're getting in return. Some merely promise that your heirs will inherit at least the amount you originally invested if your account loses value before you die. But these extra guarantees usually aren't worthwhile if you have more than a decade before retirement -- and can ride out the market's ups and downs -- or if you'll be receiving guaranteed income from a pension that will cover many of your regular expenses in retirement.

In that case, you can generally afford to invest more in stock funds and don't need to pay extra for another guarantee. Some plans also offer fixed annuities. Be careful before switching. If you do find better b investing options, don't automatically move money you've already invested. Some plans even impose a new surrender period on each new contribution. In that case, consider putting new contributions into the low-fee option and gradually shifting the rest of the money as the surrender period shrinks.

After you leave your job, you can usually roll your b into an IRA, but be mindful of surrender charges before making any moves. Consider a Roth IRA. If your choices are limited to high-fee b investments with no match, you could invest in a Roth IRA instead.

403b plan investment options

Even if you have good b options, a Roth IRA -- or Roth b , if available -- can diversify your tax options in retirement. You'll have a pot of tax-free money to tap in addition to the b , which will be taxed at your income-tax rate in retirement.

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Consider maxing out the first if the investments are better and the fees are lower. Toggle navigation Menu Subscribers Log In. Sections Close Menu Wealth Creation Investing Retirement Taxes Your Money Your Business Magazine Contents.

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Special Report on Understanding Annuities These teacher-retirement plans often limit their offerings to insurance products, such as annuities, and they charge much higher fees than k s. Check Out Kiplinger's Latest Online Broker Rankings googletag.

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