Retirement Plan & 403b: TIAA vs. Fidelity

[coolswimmer800]

Brand new professor here seeking some advice on choosing between TIAA and Fidelity. I intend to max out on the 3 retirement plans my university offers:

• Optional Retirement Plan (ORP) [https://hr.utexas.edu/current/retirement/optional-retirement-program]
• 403b (I am choosing Roth)
• 457b (I am choosing Roth)

For both my ORP and 457b, I am having a difficult time deciding whether I should do 100% TIAA, or perhaps split 99% TIAA and 1% Fidelity for both programs. My Benefits Administrator told me that employees can vest immediately if I already have an account with either TIAA or Fidelity from a previous university, which is why I was thinking of having at least a tiny amount with Fidelity when I leave for another university (which is likely since I am in my late 20s).

The investment options are identical for the ORP and 403b through TIAA and Fidelity, but there are some differences:

• The lowest expense ratio in TIAA is 0.15% and in Fidelity is 0.015%, which are all 500 large cap index funds. TIAA has several others at 0.015% ER, but Fidelity's next lowest ER starts at 0.8% for another large cap index
• I plan to select the index fund in each, and despite the 0.135% higher expense ratio, TIAA has a substantially better YTD, 1-year, 5-year, and 10-year performance than Fidelity's comparable version:
  https://finance.yahoo.com/quote/TILIX/performance?p=TILIX
  https://finance.yahoo.com/quote/FXAIX/performance?p=FXAIX
• Both TIAA and Fidelity confirmed other than the listed expense ratio for both index funds, they charge no other fees, which makes me think I should invest maybe 1% in Fidelity for the possibility of immediate vesting if I go to another university, plus take advantage of financial planners and market analytical tools from Fidelity, which I read was better compared to TIAA. I already have a Roth IRA through Merrill Lynch, so I can also live without more market analytics.
• Currently, TIAA has 50 investment options and Fidelity offers 40. Some notable additions offered by TIAA are real estate securities and TIAA Traditional Annuity GRA / GSRA. I'm planning to retire in 40 years, so I like how TIAA has a greater mix of options when I will need to shift to a less risky investment portfolio.

So to summarize, I am wondering whether my thinking makes sense that for both my ORP and 403b, I should put 99% TIAA and 1% Fidelity index funds? Thank you in advance!

[arcturus]

Congratulations on the job and for planning on maxing your retirement accounts! This is very forward-thinking of you.

I have never heard of a feature where you vest immediately *if* you have prior accounts at the financial institution. It is almost always a "time served" or "age" requirement (where time served can be as short as "immediately"), since the new contributions will be recorded under new accounts (associated with your new job). Thus, it does not make sense to me to split your contributions between two different financial institutions, particularly with such a tiny amount going to one of them, just in the off-chance that this situation would be the case if you change jobs in the future. Also, there is no guarantee that your future employer will offer either TIAA or Fidelity, so even hedging your bets this way is unlikely to pay off.

I have 403(b) plans at both TIAA and Fidelity (due to employer choice, not my own) and see advantages and disadvantages to both of them. TIAA has the TIAA traditional, which has many advocates (it can act something like an old-style pension, with income for life), and detractors (no one knows how it works, and the higher interest rate version has a 10-year payout requirement, so your money is locked in for a long time). I can say based on past performance (no one can predict the future) that my CREF funds have higher YTD returns than similar funds at other brokerages, despite apparent higher expense ratios.

Since it is easier to track your investments if they are held at a single financial institution, I recommend choosing one or the other, not both.

[Vkw10]

Vesting rules depend on your current employer. This one lets you vest immediately if you already have an account with provider. The next employer may have different rules.

Congratulations on committing to maxing your retirement accounts early in your career!

[in2ny]

Brand new professor here seeking some advice on choosing between TIAA and Fidelity. I intend to max out on the 3 retirement plans my university offers:

• Optional Retirement Plan (ORP) [https://hr.utexas.edu/current/retirement/optional-retirement-program]
• 403b (I am choosing Roth)
• 457b (I am choosing Roth)

For both my ORP and 457b, I am having a difficult time deciding whether I should do 100% TIAA, or perhaps split 99% TIAA and 1% Fidelity for both programs. My Benefits Administrator told me that employees can vest immediately if I already have an account with either TIAA or Fidelity from a previous university, which is why I was thinking of having at least a tiny amount with Fidelity when I leave for another university (which is likely since I am in my late 20s).

The investment options are identical for the ORP and 403b through TIAA and Fidelity, but there are some differences:

• The lowest expense ratio in TIAA is 0.15% and in Fidelity is 0.015%, which are all 500 large cap index funds. TIAA has several others at 0.015% ER, but Fidelity's next lowest ER starts at 0.8% for another large cap index
• I plan to select the index fund in each, and despite the 0.135% higher expense ratio, TIAA has a substantially better YTD, 1-year, 5-year, and 10-year performance than Fidelity's comparable version:
  https://finance.yahoo.com/quote/TILIX/performance?p=TILIX
  https://finance.yahoo.com/quote/FXAIX/performance?p=FXAIX
• Both TIAA and Fidelity confirmed other than the listed expense ratio for both index funds, they charge no other fees, which makes me think I should invest maybe 1% in Fidelity for the possibility of immediate vesting if I go to another university, plus take advantage of financial planners and market analytical tools from Fidelity, which I read was better compared to TIAA. I already have a Roth IRA through Merrill Lynch, so I can also live without more market analytics.
• Currently, TIAA has 50 investment options and Fidelity offers 40. Some notable additions offered by TIAA are real estate securities and TIAA Traditional Annuity GRA / GSRA. I'm planning to retire in 40 years, so I like how TIAA has a greater mix of options when I will need to shift to a less risky investment portfolio.

So to summarize, I am wondering whether my thinking makes sense that for both my ORP and 403b, I should put 99% TIAA and 1% Fidelity index funds? Thank you in advance!

To be clear, employee contributions to the voluntary 403(b) and 457(b) plans (sometimes called "deferred compensation" plans) are going to vest immediately (it's your money, you're just electing to defer it till retirement). The employer's contribution and any required employee contribution to the main retirement plan is what usually has a vesting period. The rule of "immediate vesting if you have the right kind of account from a former employer" is something I've only seen with TIAA. I'd be curious if you have an example of an employer who has something similar with Fidelity.

The scenario in which this split pays off for you involves
1. Leaving your current job after your plan has vested.
2. Taking a new job somewhere that has one of these rules AND has the same account manager (Fidelity, in this case).
3. Leaving job #2 during the vesting period (generally 1 year but sometimes up to 3 years).

I'm not saying it's impossible but assuming these are permanent jobs (TT or multi-year contract non-TT) leaving after 1 year or even <3 years is pretty uncommon. I honestly don't think it's worth the hassle of having accounts at 2 places. I do have employer contributions at both Fidelity (403b from old job) and TIAA (401a at current job). At old job, there was a choice between TIAA and Fidelity, and I chose Fidelity due to the investment options and fees available at the time. I never considered splitting the money. I did move to a place with TIAA and their weird rule that contributions would vest immediately but I would need to have an existing TIAA 401a account. Even if I had chosen TIAA at old job, it wouldn't have helped because it was a 403b, not a 401a. But my vesting period was only 1 year so there wasn't really any chance I would lose the money.

I would personally pick the firm you like better and put your money there rather than deal with the hassle of having an extra account with a tiny balance just on the off chance that all the stars align.

PS. definitely split contributions between 403b and 457b, as they have different withdrawal penalty rules and the limits are not combined (it's a subtle difference but 457b can be withdrawn penalty-free after separation even if you don't meet the age minimum)

[coolswimmer800]

OP here - Thank you for the input everyone!

Yea, just to clarify, my 457b and 403b have no employer contributions, so I think this should be vested immediately since this is entirely my own contributions.

My university overmatches my contributions into my first retirement plan (the Optional Retirement Plan - ORP). My ORP vests at my 13th month of employment, but my Benefits Administrator told me my ORP will vest immediately if I already have an account with one of their investment vendors. From what I understand, this is not a university thing, but a statewide policy based on what I see on the state ORP website: "Vesting occurs after 366 days of active service. This period may be waived for employees coming into the university with active employer sponsored retirement annuity contracts from one of the currently Authorized Investment Providers." I intend to stay within my state forever, so this is why I was thinking I should maybe split so I can immediately vest for the ORP, but I totally neglected I don't need to worry about splitting for my 403b since that is immediately vested already.

Given everything I have read here (again, thank you!), I am now leaning on just sticking entirely with TIAA for my ORP and 403b. After some further research, TIAA appears to be very common in all universities. If not, even with the 1 year vesting rule for another university, I don't think that will be a problem since I would be staying there more long-term.

[Ruralguy]

I think almost every American college offers TIAA at least as an option. You can probably find a list somewhere.

[AJ_Katz]

Do you also have the option to have a Health Savings Account?  If so, also plan to max out that account.

You also have the option to invest up to $6k per year into an Individual Retirement Account (IRA) that is not funded by your employer. 

I believe the max contribution is $2,000 per year into the HSA and $6,000 per year into the IRA.

Look into these if you haven't heard of them before...

[in2ny]

Do you also have the option to have a Health Savings Account?  If so, also plan to max out that account.

You also have the option to invest up to $6k per year into an Individual Retirement Account (IRA) that is not funded by your employer. 

I believe the max contribution is $2,000 per year into the HSA and $6,000 per year into the IRA.

Look into these if you haven't heard of them before...

Re: IRA, it's good general advice but probably doesn't make sense for OP. The ability to deduct traditional (pre-tax) contributions is limited if you are covered by an employer's retirement plan (which the OP is). The ability to make Roth (post-tax) contributions is limited by income level; I am obviously assuming here, but if OP has the means to max out both a 403b and 457b (for a total of $39000) on top of the required contribution to the ORP then it is likely that his/her salary is above the limit for a Roth IRA.

[coolswimmer800]

Do you also have the option to have a Health Savings Account?  If so, also plan to max out that account.

You also have the option to invest up to $6k per year into an Individual Retirement Account (IRA) that is not funded by your employer. 

I believe the max contribution is $2,000 per year into the HSA and $6,000 per year into the IRA.

Look into these if you haven't heard of them before...

Yup, signing up this week! I only have the option for FSA, which is the "use it or lose it" plan that has funds expiring every year instead of the high deductible HCSA. I am fortunately very healthy though and I don't wear contact lenses, so anything above the minimum ($100) seems excessive. At least until the end of 2020, my estimates weren't above $50, so I was thinking I could just use the rest on OTC stuff. I'll probably bump the FSA to a slightly higher amount once the new year starts. I don't understand how choosing amounts works for the different years (2020 vs. 2021), but hopefully the website will walk me through it.


To the post above (sorry I don't know how to multi-quote here!), I checked the IRS guidelines and it shows that as long as my income is <$124K, I can max out the IRA. I already maxed out my Roth IRA for this year, but I am still planning to max out my Roth IRA every year in the future since I like the rewards member perks through my Merrill Lynch / BofA account. Thanks for letting me know about the income limit, I knew there was an age catchup allowance, but I didn't know there were rules on max income.

[Ruralguy]

Unless the OP is particularly highly compensated for a new prof, I think maxing out a 403b would be difficult, although if OP is married or otherwise sharing a home with someone who is working, then it might be possible without making too much more than average.

Also, if OP is in good health, the high deductible insurance +HSA makes the most sense. The HSA money + any matching can be part of your retirement assets (whatever isn't used of course) so this is why people often suggest employees take this option rather than low deductible insurance (but no HSA).  Also, if you need or wan to switch to low deductible plan later, you can. You can then keep the HSA, you just won't be able to contribute to it anymore.  FSA can certainly be useful, but is nowhere near as flexible as an HSA.

[clean]

Congratulations on maxing Both the 403 AND 457 plans!  (Plus the ORP)!

Remember that one of the primary benefits of the 457 plan includes being able to access the money, iwthout penalty, after separating from the employer (regardless of age).

Finally just a note on Vesting... While you may vest, you would not be able to access the contributions WITHOUT paying the penalty for early withdrawals before 59 1/2 (or 55 if you leave your current employer at 55, you can access that employers - only- plans). 

Oh, do check on the Roth IRA contributions limits.  IF you make too much, you phase out and lose the ability to contribute to regular and Roth IRA accounts  (I think that the number is $139K in 2020 for singles)

[bento]

I've been with Fidelity all my academic life for all optional retirement savings, and have moved jobs 4 times (now near retirement).  My former university system dropped ties with TIAA for some obscure reasons, and we then all moved 100% on to Fidelity platform.

I know your question about vesting is technical and I can't answer.  But I will say that Fidelity really treats a small investor like myself with the utmost courtesy and professionalism - every time, every phone call, every update, every conversation.
Fidelity reached out to me aggressively to rebalance my portfolio because of my age and the economic environment.  I would never have thought of it on my own - just not much of a savvy investor.  The result has given me a huge amount of peace of mind. 

So this is just one vote for Fidelity being part of your thinking. And huge congratulations on the job, in this climate!

[coolswimmer800]

I've been with Fidelity all my academic life for all optional retirement savings, and have moved jobs 4 times (now near retirement).  My former university system dropped ties with TIAA for some obscure reasons, and we then all moved 100% on to Fidelity platform.

I know your question about vesting is technical and I can't answer.  But I will say that Fidelity really treats a small investor like myself with the utmost courtesy and professionalism - every time, every phone call, every update, every conversation.
Fidelity reached out to me aggressively to rebalance my portfolio because of my age and the economic environment.  I would never have thought of it on my own - just not much of a savvy investor.  The result has given me a huge amount of peace of mind. 

So this is just one vote for Fidelity being part of your thinking. And huge congratulations on the job, in this climate!

Thanks so much for this input!

Yeah, in addition to the possibility of immediate vesting, the other main reason I wanted some portion invested in Fidelity is that it consistently ranks high in customer service across all vendors I can choose from.

I am slightly conflicted, but I think the higher returns and less hassle with only TIAA as my provider does make sense, regardless of how great Fidelity is for customer service.


Also, thanks to the posts above reminding me about withdrawals rules. I think I won't need to worry about tapping into the 403b and ORP funds, my Roth 457b and Roth IRA should be able to serve as my emergency funds before I turn 59 1/2.

[tiva]

I've been with TIAA-CREF for 27 years, and they've been reasonable. Their one-on-one advice is quite clear and helpful. However, I much prefer Vanguard because their costs are so much lower than either TIAA-CREF or Fidelity for most options (ie, for a target-date 2025 lifecycle fund, the fee is 0.77% from TIAA-CREF and 0.13% from Vanguard. That's a huge difference over a career). My current university allows Fidelity or TIAA-CREF, but not Vanguard, so every couple of years, I roll over from TIAA-CREF to Vanguard to save on the costs.

[nonsensical]

Oh, do check on the Roth IRA contributions limits.  IF you make too much, you phase out and lose the ability to contribute to regular and Roth IRA accounts  (I think that the number is $139K in 2020 for singles)

I believe that you can contribute to a Traditional IRA, up to $6k for 2020, regardless of how much money you make or what other retirement plans are available to you. The thing that phases out is the tax benefits you get from doing so, but you can still contribute up to the max amount regardless of your income (as long as you have enough earned income to cover the contribution, which doesn't sound like an issue here) and even if you are covered by a retirement plan at work. I am looking here for this information: https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-ira-contribution-limits.

If you make too much money to contribute to a Roth IRA directly, you can contribute to a Traditional IRA and then roll the money over to a Roth. You would pay taxes on any money that your contribution to the Traditional IRA made prior to the rollover, but if you do the rollover relatively quickly after the contribution, it will not have had a chance to make (or lose) money yet.