Opening an Optional 403(b)
Effective this month, I’ve enrolled in an optional 403(b) retirement plan through work. I’m contributing the max to my ’standard’ defined contribution retirement plan (5% of my salary). When combined with the matching funds (a bit over 8% of my salary), I’m stashing a little better than 13% of my annual salary in that account. On top of that, my wife and I have both been maxing out our Roth IRAs (we do this every year). So what’s the point of the optional 403(b)?
Well, we can afford more than the 5% + $8k that we’re currently saving, and the 403(b) let’s us do it in a tax-deferred fashion. Moreover, my employer’s 403(b) is pretty flexible in terms of vendors. In fact, we can even use Vanguard, which is unavailable to us through the standard defined contribution plan (we’re using Fidelity). For now, we’re pouring eveything into the Vanguard Target Retirement 2035 Fund which provides us with instant diversification at a low cost.
The only thing that I’m not crazy about is the fact that Vanguard charges an annual administrative fee of $15/year for 403(b) accounts. This fee is in place for all customers with less than $250k in total assets at Vanguard (this is where their so-called ‘Voyager’ service kicks in).
Right now, our only other retirement savings option is my SEP-IRA. Since we’re maxing out our Roth IRAs, we can’t make any ’standard’ employye contributions to that account (Roth, Traditional, and SEP contributions all count toward the same limit). However, I’ll be able to make 2006 employer contributions to that account on my own behalf (which I plan on doing). The limit here is 25% of my net self-employment income (which is a good bit less than 25% of my gross self-employment income).
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Modified on February 19th, 2008 - 4 Comments
Filed under: Retirement, Saving & Investing, Taxes
About the author: Nickel is the founder and editor-in-chief of this site. He's a thirty-something family man who has been writing about personal finance since 2005, and guess what? He's on Twitter!
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4 Responses to “Opening an Optional 403(b)”
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December 26th, 2006 at 11:35 am
Merry Xams to you.Wish al your dream come true this year
December 27th, 2006 at 3:00 pm
Nickel will you save the maximum $15.5k/year into the 403b? Why wouldn’t you save the maximum? Is it because you have other goals?
December 27th, 2006 at 4:16 pm
We’ll see. We’re already saving for retirement through another employer plan, two Roth IRAs and a SEP-IRA. We also have four kids and one income. While our income is way up relative to a year ago, I’m still not sure if we’ll be able to knock out the whole $15.5k this year. We’ll certainly try, though.
December 29th, 2006 at 11:22 am
That is excellent. It sounds that you are doing a great job of stashing money away for the future. Did you happen to catch Laura Rowley’s column about regret when it comes to money? Do you feel like you are depriving yourself too much to meet these goals?