Is a Self-Directed 403(b) Right for You?

This retirement option could save you hundreds of thousands over the course of your career.

Is a Self-Directed 403(b) Right for You?

The process of investing using a 403(b) is tricky to navigate. You have to decide which vendor to use, whether you need an insurance or investment product, what features to include and how often to talk to your agent.

Some of this is taken care for you as districts have lists of vendors that teachers can use to open a 403(b) and save for retirement. Typically, they do not give any more information above and beyond this list—mostly because they are not legally allowed to.

What teachers don’t see on this list is how there are two different types of 403(b)s—annuities and investment accounts. While they both look the same, annuities are sometimes three times as expensive without providing much extra value (look for companies with “insurance” in the title and you can avoid many of these products). Many times, they even underperform investment 403(b)s without providing value in other features to make up for it.

But another option is becoming more prominent in the K–12 marketplace, providing certain vendors are available in a district—the self-directed 403(b).

What is a self-directed 403b?

Only available from select vendors, this option allows you to not have a representative assigned to your account to help you manage the investments.


From doing research and having my ear to the ground, the current vendors appear to be Fidelity, Aspire, Lincoln Investment Planning and Vanguard. They will not openly advertise this option so you’ll have to ask the company directly and persevere when company representatives don’t understand what you’re asking.

Not having a representative assigned to your account means cost savings. Typically representatives come with an annual cost of 0.75-1.5% of your account balance depending on which 403(b) company you choose to retain. Using a self-directed 403(b) can bring the overall cost to below 0.5% per year (investment expense ratios included).

In the long run, that could mean saving hundreds of thousands over your career.

How does a self-directed 403b work?

If you select a self-directed 403b, you have to be confident that you can choose suitable investments, complete basic paperwork and have the discipline to review your account on a set schedule (every 6 months, every 12 months, etc.).

Let’s say, for example, you choose to have a 403(b) at Fidelity and they are an approved vendor in your district:

  • You’d go on the Fidelity 403(b) website and find the application to open a 403(b).
  • You’ll need to make sure you know the plan number that Fidelity has with your district so your application goes through.
  • There’ll also be a form to assist you in making sure your retirement contributions are deducted by your payroll department and make it to your 403(b).
  • You’ll then be given online access and can go and design an asset allocation for your contributions.
  • If you don’t want to get that detailed, using a Target Date Retirement fund would suffice as well.
  • Periodically, you’ll go online and make trades to rebalance your investments back to the original investment objective.

Is a self-directed 403b worth it?

It all depends on what you value.

If you are okay paying someone to manage your account and would like time to do other things, then this might not be the best option. But if you are comfortable with managing an investment account and are looking to save fees, it can be a great way to put lots of money in your pocket over an extended period of time.

It should be made clear that aside from the time taken to complete some forms to open the account, it shouldn’t take more than a few hours per year to manage this account appropriately.

There’s also the added benefit that you can add a financial advisor onto the account (for Fidelity and Vanguard) and they can manage the account for you. This helps if you already use an advisor to manage other money for you, or you have one who helps you implement a financial plan.

This option won’t be appropriate for those who aren’t educated in managing an investment account, or simply don’t have the desire to do so. But for those who are capable and willing, the financial savings over a career can be substantial.