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Use Of "free Corridor" To Avoid Fees... When Is It Worth It?

free corridor 403b exchange contract rollover fees surrender penalty

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#1 Imua808

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Posted 02 October 2017 - 10:51 PM

Aloha folks!


So I learned a new term today...  Thanks to this forum and the kind folks here, I started my journey toward fiscal responsibility and found out about my state's 457 "deferred compensation" program and  a better 403b option with lower fees and better investment options.  I got the 403b new account open and redirected my pre-tax savings into it.  Now that that's squared away, I'm finally getting the exchange paperwork done.  When I requested the paperwork and the account numbers, the advisor that set up the original 403b contract has suggested the use of a "free corridor" to avoid surrender fees.


When I looked up the term, it seems as though surrender fees can vary from contract to contract... some fees drop off completely after a certain amount of time, and some reduce by steps year after year depending on a certain amount of time. Near as I can tell, my contract with AXA specifies that the surrender fee won't fall off until after year 7, and I'm only in year 4.  From other internet reading, for some contracts, surrender fees are applied to the date of the monies being deposited , not necessarily the date of the contract start.... so "free corridor" is the money that can be transferred without surrender fees, which can be done in incrementally.


The way I look at it now, my surrender fees are high, but not as bad as leaving the money in the account.... where I'd be accumulating an annual fee, expense ratios, and a quarterly penalty for an account under $XX,000. Haha... so my answer to my own question is... it's not worth it for me according to the math. 


So now, near as I can tell, I have all the information and paperwork that each provider and my state's TPA requires to get this done.  Whew! 

#2 krow36

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Posted 02 October 2017 - 11:23 PM

I think you have it figured out. The "free corridor" is a bit of a con. The surrender fees on the what's left in the account (not in the free corridor) are not as high as the sum of the annual fees and high ERs over the remaining years. Plus by staying partially in the AXA 403b, you give up access to low cost index funds.

#3 EdLaFave

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Posted 02 October 2017 - 11:33 PM

I'd have to know the exact numbers to say for sure. However, every instance I've seen thus far has justified selling everything ASAP.

Sounds like you've got it all figured out. Congrats.
Navigate and reform OCPS' 403b and 457b.

#4 saab93

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Posted 03 October 2017 - 01:22 AM

Yep, I think you you made a smart move.


I agree that it could vary case by case, but most of the time the "free corridor" is going to be their final attempt to keep some of your money with them.  

Congratulations.  It must feel great to have made this change. 

#5 sschullo

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Posted 03 October 2017 - 09:08 PM

I'd have to know the exact numbers to say for sure. However, every instance I've seen thus far has justified selling everything ASAP.

Sounds like you've got it all figured out. Congrats.


Hi saab,


I agree with Ed. If we are just talking about a few thousand dollars in that turkey AXA product, and you are still young, get the hell out now. I got out of two horrible products, and paid 18% that's $6000 in surrender fees because I wanted OUT IMMEDIATELY! I was angry at both the company and the agent and never looked back. I never listened to an insurance agent again. It's tuition to becoming a DIYer. And made more money in REAL investments, not contracts! 



Steve Schullo

Author and Co-Author of two books:

1. Late Bloomer Millionaires: A Financial Story and Investment Guide for the Late Starter (2013)

2. Fighting Powerful Interests: Educators Challenge Tax-sheltered Annuities and WIN! (2015)

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