1. Angela

    I’m a first year teacher and this post is finally giving me the courage to say no to my 403(b) options and to open an IRA on my own instead. I know the 403(b) options are bad but there’s so little transparency around the whole thing that I feel really nervous not opening one. I’m not at the point yet where I’ll be maxing our an IRA and my state pension system is theoretically reliable (fingers crossed). Not sure what next steps are once you’ve reached the point where an IRA isn’t cutting it anymore.

    • Awesome, Angela!

      So we are doing Roths, not traditional IRAs. I only say that because it means our “max” is actually a lot less impressive. 😉 Don’t get me wrong! It still took time and budgeting to do it, but it’s a lot less than maxing a traditional account. I’m still holding out hope that I’ll collect a pension, so in theory, a Roth makes sense for me.

      • Morgan

        I’m confused by this statement. The limits for a Roth IRA and a Trad IRA are the same. It actually takes MORE money to full fund a roth, because there is no tax savings so you must have enough to both fund the max and pay taxes in addition. ???

  2. Ugh, terrible retirement plan options. I hate this for you guys!! Since our incomes are way lopsided anyway, Mr. ThreeYear maxes out his 401K (using the lowest-cost S&P 500 Index fund Principal offers), and I contribute as much as I can trick myself into saving into my Vanguard i401K (although this is all theoretical at this point since I’m bringing in a total of $75/week from my tutoring gig this year, sans job). So, maybe you could inch up your contributions in your plan, since you have a better option, and your hubby could contribute less (nothing)? It’ll still affect your taxes the same amount regardless of who contributes. And if he ever switches jobs and has a better 403b option, then he can start contributing more. I just feel like maxing out Roth IRAs doesn’t give us enough $$ for retirement, and I love the tax savings of our 401ks, but then again, we don’t have pensions, so we’re in a totally different situation.

    • I mean, I’m not sure we have pensions either. Sigh.

      In my wildest dreams, I envision maxing out my 403b, and using some of my side hustle money to fund our budget. Right now, everything I earn side hustling gets saved.

      This might actually be the kick in the pants I need to really look at our income streams. Thanks, Laurie!

  3. Becky

    I would make an appointment or call Vanguard or Fidelity and pose the dilemma with them. I actually pulled all my monies from a 457 account and it was the best decision I ever made. It had 2 options – a generic low yield savings count or the investment one very similar to your husbands 1 choice. I now have several IRA’s (yes taxable but with very low fee structure) and a couple of brokerage accounts in low fee – funds. All have done well and I no longer have to worry that most of the money saved is going to be gobbled up in fees rather than helping out when we retire, This has been a huge topic among my co-workers – some of whom retired and just got slammed with the fees upon their 1st withdrawal and are now trying to figure out what to do….continue to gather information and then you can make choices on what will best fit your family and future.

    • That’s really good advice, Becky! We love our taxable with Vanguard. It just feels “risky” because those accounts aren’t talked about much in the PF world. Guess we know what my spring break project is. I appreciate the suggestion!

  4. It looks like IL isn’t community property, but I think I would still max out your Fidelity before contributing to his bad options. (Based on my quick internet reading, so double check with someone who knows what they’re talking about) it will get divided up in case of divorce anyway, even if not 50/50.

    Somewhere we have a post on this, but I can’t find it… With bad work options:
    1. Contribute to work retirement plans up to the match (if any)– the match will usually outweigh the feeds even with high fees
    1.5 Pay off high interest debt
    2. Contribute to an IRA or Roth IRA (or backdoor Roth) using Vanguard (or similar low-fee provider)
    3. Contribute to spouse’s plan if their options are better (if applicable… also specifically spouse, not partner unless you have a partner contract that says what happens to joint assets)
    4. Think about how much is being invested and if a 529 plan or repaying the mortgage will work better based on fees, interest rates, etc.
    5. Contribute to the crappy retirement plan

    What we did before DH and coworkers convinced his company to switch to Fidelity (from a super expensive provider) was to take the company match for his company and then max all my retirement options out (including the 457). After the switch to fidelity (and a couple of hefty raises) we maxed his retirement and then opened backdoor roths.

    • I’m actually so glad you “went there” because that’s exactly what I was thinking but not effectively implying with my writing.

      We obviously think we are in this for the long haul, but we also know what the divorce statistics say.

      I love your breakdown, and I’m going to try to find the link on your site. I would love, love, loev to share it out!

  5. Jim @ MSW

    Sounds like the 403(b) your husband has may not even be worth investing in. The other thing to consider is that the benefit of tax-deferred investing depends on your marginal tax rate, which depends on your income. Not sure what your family’s overall income is, but if you are MFJ and have a combined income of $101K and don’t itemize, you’d only be in the 12% bracket anyway. With those kind of fees, it may be worth it instead to just invest after-tax?

    Also, does your husband (or you?) have a 457 and (if so) does it offer anything reasonable? May be another option for socking money away.

    Finally, is there any way your husband could push for a better 403(b) option at work? Can’t imagine that setting up Fidelity as an option would be that much work for the system he is in.

    Ugh. It truly amazes me how badly teachers and other government employees get screwed when it comes to tax-deferred savings opportunities. In my wife’s district, she has Fidelity as a 403(b) option – but you have to do some legwork yourself to get started in it, mainly by calling Fidelity to set up an account and then pushing the paperwork yourself through HR. They don’t have reps to come out and help you.

    Unfortunately, the bad guys in this space have an army of reps that are more than willing to help teachers send their money to them. She tells me that the AXA and VALIC people are regularly in the breakroom with free food, and lots of teachers fall for it. She tries to tell them how much money they can save by just going to Fidelity, but they still go the high fee route anyway :-/

  6. Jen

    I would use your 403(b) to invest your husband’s money. That’s what we do though in reverse. I have a SIMPLE IRA at my workplace and the fees are atrocious!

    This assumes you share finances and are beneficiaries for each other. If not, I only know to go to 529 after that if you need tax savings…

  7. I don’t know how much you earn with your side hustles, but maybe make an S-corp (it only set me back $200-300, I believe and it saves you some self-employment tax) and then open a SEP-IRA. You’d be able to contribute both as an employer and, I believe, an employee. Which would increase the amount you could contribute. And you can still have a Roth too.

    I know that’s a bit convoluted, and you might not do enough side hustling to make it worthwhile; but it’s something to consider.

  8. Normally I would recommend to just deal with the options you have to pick from for your employer retirement plan but only one option!? That’s really terrible! I would see if you can talk to Fidelity and see if they can offer a few more funds to pick from because just having one option sounds crazy. I would rather open up a regular brokerage account and invest in long term funds to treat it like it’s your retirement account.

  9. “And I’m pretty sure it’s been a colossal bloodbath since.”

    Stocks are close to an all-time high. They’re just numbers on a screen, Penny! 🙂

  10. I’m no expert when it comes to public options any longer. But as I understand it, the thing you’re giving up is the tax deferral benefits (whatever your marginal tax rate is) and what you’re gaining is avoiding those ridiculous fees.

    If the tax benefits are greater than the expected return (minus those fees) then you could justify using the 403b. If not, then sitting out seems to be the best option.

    I’m again no expert, but is there also a 457 option on top of the 403b for public employees?

  11. I haven’t read all the comments, so forgive me if this has already been suggested. Take what your husband would contribute if the plan were awesome and put that into the highest interest paying account you can find (try maxmyinterest.com for examples). Automate the contributions and wait. When (if) your husbands plan trustee pulls his/her head(s) out of their cloaca, take the amount of funds you have saved and contribute that much to the new improved plan as quickly as is allowable, and use the savings to make up the paycheck reduction during that short period of large contributions. Then switch the contribution to the retirement account instead of the savings account.

    You’ll get the benefit of a contribution w/o the pain of high fees and no choices and won’t be behind the curve with respect to contributions to the plan.

  12. Mr. Frustrated

    My wife is in the same boat. Horrible 403b options. She already contributes to a ROTH and there is no option at my work to re-direct the money to. We stopped the 403b contributions this year to see if we can come up with something better. It’s impossible(or so it seems) to get the school to add more options. So we may be reduced to contributing to the horrible options again and biting the bullet on the fees. It has to be better than putting money into a taxable account right?

    • I’m not actually sure if it is better. I think I’d have to sit and really run the numbers. Our taxable with Vanguard hasn’t stung too much at tax time, and it’s really nice to have control. But I do have the same feeling — doing nothing is likely worse than paying fees or taxes! It’s just hard to know what to do when all the options seem suboptimal.

  13. So glad I found your blog! I’m also a teacher and have been paying a small amount into my 403b, also with AXA, for about five years. It wasn’t until this year that I read Millionaire Educator’s post about this, and immediately opened up a 457 instead—lower fees and more flexibility in withdrawals during retirement. I had to wise up about the costs of the 403b—if the expense ratio was mentioned at the time I signed a contract, I definitely missed it. Even now it’s still difficult to figure out. My 403b is a Roth, which wasn’t getting us any tax breaks at this time in our higher earning years. I am planning to stop contributing to the 403b this year once it hits a certain number and move all contributions to the 457. Something that I have read is that you can petition your school district to expand your options, such as a 401k. It seems like some straight up corruption that you only have one option!

    • It is so frustrating. I agree! Our 457 is only an annuity option through AXA so I don’t use it at this time. Thankfully, since writing this post, my husband’s district has expanded their options. But now we have to dig through everything and see if any of it is worth is. SO MUCH HOMEWORK 😉

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