Over the past few weeks, I have visited with some educator-clients, and they have expressed concern that they weren’t utilizing their 403(b) to its maximum capability. They were confused with how much they should be contributing and what funds they should be using. Here are three tips to help maximize the use of your 403(b):

Be aware of all the expenses

403(b)’s aren’t free. There are expenses charged by the investment company who manages the 403(b) plan and there are also expenses charged by the funds in which invest your money. The total fees you can end up paying can range from below 1% to over 2.5%, so it pays to do some research. However, cheaper isn’t always better when it comes to fund selection. When looking at two comparable funds, a relatively expensive fund that produces returns should be more desirable than a cheaper fund that doesn’t produce any investment returns.

Even though the fund choices are limited, the generic funds may not be suitable

Looking over a 403(b) recently, it appeared that all the contributions and current savings were invested in the plan sponsor’s funds. Upon doing some research, it appeared that they were over 20 fund choices to choose from. While this is not a lot when compared to the thousands of mutual funds in the open market, there was no attempt to build a portfolio using these funds. If these 20 funds had been used to build a portfolio to suit the client’s needs, it would have performed better over the lifetime of the account and also have been more appropriate for the client’s risk tolerance level. You should do some research into the funds you invest in to be sure they are cost effective but also provide an investment return that helps you meet your goals. Looking at the historical returns can be part of your research process, but don’t make your decisions just based on the historical returns, you may not achieve these same results in the future.

If you find another 403(b) you’d like to use, do some research before moving your existing investments

Many educators have an array of 403(b) sponsors available to them. It’s not unusual for educators to want to change plans for any number of reasons. However, before you open up a new plan and transfer your current 403(b) assets, it is wise to research any surrenders charges and penalties that may be applicable. If you find that there are surrender charges that would have to be paid should you move your investments, it is not wise to move them. Start investing in the new plan, wait until the surrender charges have lapsed, and then move the assets over to the new plan.

Educators have a number of options when it comes to investing in a 403(b), but there are also a number of options and situations where many can be lost. If you find yourself having the same questions, or even different ones, relating to your 403(b), then you can email me or give me a call (847-590-5555 x 104) and we can discuss them.