I have been getting calls and emails about contributing to our 403(b) (TDA) program after the New York Times published an article on the high fees charged to teachers in their 403(b) plans. According to the article far too many teachers have 403(b) plans that charge between 2% to 3% administrative fees and this does not include the underlying fees for the investment product that range from a minuscule 0.15% to over 1%. Worse, if the 403(b) is wrapped into a variable annuity, there could be a surrender fee of 6% or more, just to escape the 403(b). Even our State and National unions, NYSUT and NEA offer supplemental 403(b) plans that have high fees and back in 2006 NYSUT was actually taken to task for the high fees they charged.
Despite the nationwide horror stories about teacher 403(b) plans, the good news is that our 403(b) (TDA) plan is one of the most cost efficient 403(b) plans in the nation. Our administrative cost is only 0.15% and the underlying bond and stock funds have low cost fees as well. According to an article about New York City pensions, the underlying investment costs range from 0.08% for domestic stocks, 0.14% for bonds,.and 0.28% for international stocks. Since few teachers participate in the bond fund and the 40% of the teachers that invest in stocks funds usually invest in domestic stocks, the total TDA fee is probably close to 0.25%. By the way, there is no administrative or investment fee for the fixed income option in the TDA which consists of 60% of the total contributions .
There are some downsides to our TDA, like it does not allow for a Roth option and it takes three months to re-balance the portfolio to name just a couple. Otherwise, one of the best way to save and supplement your retirement is to contribute to your TDA as much as you can for a healthy and happy life after you leave the job market. If you have additional money to invest, think about the City's 457 plan or open up an IRA with no-load and low fee mutual funds or ETF's.
9 comments:
It only takes 1 month now to re balance now.
I would also add that you can now put any percentage into the TDA you want, which allows teachers to put their maximum into the TDA in a shorter amount of time. For example I am under 50, so I can put a maximum of $18,000 into the TDA. It would appear at first that my maximum percentage is 17%, however if you go to the calculator in the window that pops up when you want to change your percentage and finagle the numbers a bit(you can put $5 in every space and it will tell you that you can put in 99% of your check). You simply delete that number and can put any other amount in, ex. 65%-as I do. So I put in the maximum amount, $18,000 in from just January to April, and they simply stop taking the money out when the maximum is reached. WHY DO THIS? By having all the money in the fixed fund by April I earn 7% on the full $18,000 for 8 months of the year(May-December), which is $840 more than if I simply put in 17% a check where the full $18,000 isn't in there until December. I realize most people can't afford to do this, but if you plan to retire or have a second job like me, it's a great option.
I would also highly recommend the NYC Deferred Compensation Plan which is also offered to all NYC employees. Teachers can put 18k both into a 403b-which is the TDA and another 18k into the 457 plan(over 50, then you can put 23k into the TDA and 23k into the 457 plan). They also offer the ROTH option if you want to put it in there. I personally put 18k into the TDA and 18k into the 457 Roth account to hedge against future tax hikes. In the future when I get those larger "retro payments" in 2018, 2019, 2020, I'll tax defer my money to avoid higher taxes.
I LOVE THE ROTH! Any money in there grows tax free, and you NEVER, EVER have to pay taxes again on it. I can also pass it on to my children without them having to pay taxes on distributions! WOW!
DO YOUR RESEARCH!
Where does the 457 get invested? Stocks? Fixed? What are the options?
Anonymous 7:45pm, your TDA up front strategy is an excellent idea. Too late for me, however.
In regard to the 457plan there is no money fund available. The closet fund available is a fund that invests in paper with a 3-5 year maturity.
Chaz,
Any idea on what the outcome of the new ATR negotiations were? I heard the UFT is having meetings starting next week. Thanks.
Anon 7:45
Thanks for the info. Like you said few of us can take advantage of this feature and it still is limited to earned income.
Anon 8:07
The 457 plan has many different options but none like thye TDA fixed income plan.
Anon 4:02
There were no agreements hashed out to my knowledge.
The DOE is rotating ATRs bi-weekly to vacancies in their subject areas. These ATRs are then observed by ATR supervisors and summarily rated Unsatisfactory. Those ATRs that have no vacancies in their subject level rotate monthly. Maybe Amy will tell you about it after you get u rated then again maybe not.
Are you allowed to leave your money in TDA after retirement and then just take out of it like a bank account whenever you want and however much you want? I know at 70.5 you have to take out a minimum amount.
If you do that and then die, does everything go to your beneficiary?
Anon 8:38
I believe so.
Thanks Chaz for posting about retirement funds. We should be able to get info without having to attend seminars.
The info for NYC DCP including fees can be found here:
http://www1.nyc.gov/assets/olr/downloads/pdf/deferred/sumguide.pdf
Not sure why the UFT doesn't push this option more.
Post a Comment