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403b Variable Annuity Question


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#1 Jackie

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Posted 01 January 2008 - 05:56 PM

I have a 403b Variable Annuity through my school district. I'm trying to roll the money to a Traditional IRA at Vanguard. I know per IRS rules, I need a "triggering event" to make that happen. If I separated from the school district who I had the 403b through in 2003, but then returned to the same school district in 2005 - can I still roll the money? Does the 2003 separation count as my "triggering event?"

Thanks in advance for any help,
Jackie

#2 tony

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Posted 01 January 2008 - 08:31 PM

I will take an unqualified stab at this. It would seem since you did actually seperate that it would be legal to do so since you had no prior knowledge that you would be returning. I could see this as a possible loophole issue however. It would seem to me you could not do it now but may have been able to do it while you were actually seperated.


See if this site answers your question. If not one of our technical experts will step in and correct me.


http://www.irs.gov/r...d=96975,00.html


#3 John Feldt

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Posted 02 January 2008 - 12:45 AM

As Tony indicated, a correction could be forthcoming...

Now that you are back with this employer, you must look at the plan's current provisions, and yes, you must currently have a triggering event. Up until the day you were rehired, you were probably eligible for a distribution. Now that you are no longer separated from service, the "separation from service" trigger is not available to you again until you actually sever your employment again.

#4 Jackie

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Posted 02 January 2008 - 07:50 AM

Thank you for the information and advice. Is there no way to get my money out of this 403b then? I've been tracking it for months now, and it's just junk. My rate of return varies between 1-2%, but never more. I could make more money if I had just put the money in a savings account. Any advice?

#5 tony

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Posted 02 January 2008 - 09:26 AM



Jackie

Your story is not new to us. Hopefully you are young and can learn from this and recover. You are feeding a salesman's retirement and not yours most likely. Coming here will put you on the right track so keep asking questions you need answered.

Call your personnel at school and the company you are "investing" with and see if you can possibly transfer it to another company that the school system offers. With the new regs its iffy but I just heard from a friend who informed me he was allowed to transfer out of one choice and into another because his school system already has a written plan in place.

Please list all your choices with us available at your school system here before you do anything else.

Also find out what you are investing in and state that here along with the company.

Avoid talking to any salespeople. WE can work you through this.

If nothing else you can stop all contributions with this company and start anew.


Jackie,

Also see if you can find out if their is a surrendar fee. You can usually find this in the perspectus and often on the quarterly reports you receive in the mail. If you are open to telling us-how much money are we talking about and what is your age and marital status.

#6 Jackie

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Posted 02 January 2008 - 01:08 PM

Approved Vendors - 403B Tax Sheltered Annuities

1) AIG VALIC
2) American Fidelity
3) Horace Mann
4) Smith Barney
5) Met Life
6) Oppenheimer
7) Prudential
8) TIAA-CREF

Below are the particulars of my contract:

Company: Smith Barney
Issue Age: 26
Product Name: New Generation Venture
Share Class: Series 1
Line of Business: 403(B)
Inception Date: 08/02/2001
Issue State: IN
Total Gross Investment: $1,740.00
Fund Manager: MFC Global
Fund Name: Lifestyle Growth
# of Units: 85.7894
Unit Value: $22.078655
Total Contract Value as of 12/31/2007: $1,894.11

I talked to someone in our admin building and they said they think I can transfer to another 403b in our plan, but I have to wait until open enrollment in May 2008 with changes taking effect July 2008.

I have already stopped contibutions. After a seven year waiting period, there is not supposed to be a surrender fee. Will I still have to pay a surrender fee if I roll to another 403b within the plan?

I am 33 and married.

#7 tony

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Posted 02 January 2008 - 06:33 PM



Jackie,

This is very little money. I would do the following:

1. Tansfer the money over to TIAA -CREFF and put it in one of their large cap growth funds. Then forget about it.

2. Maximixe your Roth option to the full amount and make sure your husband is doing so too . You both qualify for 4,000 each per year. Put this in a Vanguard Target Retirement Fund that coincides with your year of retirement. Contact Vanguard and they can help you with this process. They can even set up a monthly withdrawal from your checking account.

3. I would forget the 403B option all together at this time unless you plan on investing more than 8,000 a year.

This is a simple solution to your problem at this time. If you start to invest more than 8,000 a year the extra
that you invest can be put in a 403b account with your only good option which is TIAA-Creff.

Jackie. Please keep your expectations in check. Low fees are an important consideration and Vanguard and Creff are excellant choices but the market may only give you 7%-10% on average and opver time this will compound and serve you well. Short term show some patience and stay away from any hall hugging
salesperson selling annuities.

#8 sschullo

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Posted 03 January 2008 - 11:11 AM

Hi Jackie,
Welcome to this site and congratulations on thinking about your retirement at such an early age. Starting in your 20s offers tremendous advantages because its time that is on your side.

You got some excellent advice. I just want to add that I am using TIAA CREF for my 403b and have been satisfied with the results over the last 6 years. It is amazing to me that you money has not done anything. Itís one thing if the stock market was terrible, but itís been a bull market for 5 years and this rip off outfit at Smith Barney got you only 1-2%!

Lesson number 1: Stay the heck away from all full retail brokerage firms and TSA sales people who come to schools.
Lesson number 2: Read Dan Otter's Book, "Teach and retire rich". Its right here on the home page and continue to learn how to be your own adviser.

You came here asking questions and now you know not to ever listen to any of those sales people. We have ruined your naivetť and thatís great because 99% of our colleagues don't have a clue and they continue to get ripped off. But thatís only the first step. Itís important but if you really want to avoid the sales pitch and not fall victim to it again, learn about diversification, low costs, asset classes, how the stock market and mutual funds work, rebalancing, indexing, John Bogle and his latest book (Type Bogleís name on Amazon).

For sure, it is overwhelming as you read my post at this very moment, but just remember it was not too long ago that I did not even know what a 403b was! And I was in my middle 40s. Teaching is much more difficult than learning a little about finances.

Best of luck,
Steve


#9 Jackie

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Posted 03 January 2008 - 01:04 PM

Thank you all for all of your help and advice. You're absolutely right about trying to educate yourself to make better financial decisions. What caused me to start inquiring about all of my retirement accounts is our district's current financial situation. We're 2.4 millon dollars in debt, so that means no raises and possibly more expensive (if that's even possible) health care. The admin is trying to buy out our teachers near or past retirement age, but what they're all finding out as they're sitting down with their financial advisors is that they've invested in junk all these years, or not invested at all, and now don't have enough money to retire. So, we're stuck - the district can't really afford to keep them and the teachers can't really afford to retire. Once I started thinking about all of this, I figured I'd better educate myself so I don't suffer the same fate.

I called TIAA-CREF this morning and they are going to send me the paperwork to transfer my money out of the 403b at Smith Barney. Hopefully that will work. TIAA-CREF didn't indicate I'd have to wait until open enrollment to transfer, but our admin did, so I'll see what happens. At this point, since I can't transfer to my IRAs at Vanguard, I think TIAA-CREF is my best option. It will still be a 403b variable annunity with TIAA-CREF, and the person I spoke to said I only have about 10 choices to invest in, but I'll post that here to get feedback if/when I successfully transfer the money.

A word of warning to others on this board - stay away from Smith Barney. Once they realized I wanted to transfer my money, I've had nothing but trouble from them. They sent me the wrong forms, neglected to tell me signatures were needed, whatever they could do to drag their feet. I spoke with another co-worker and she told me that she and her husband also had a 403b account through them, and even after her husband reached 59 1/2, they still gave them the runaround when they wanted to transfer their money - they're the kind of company that gives the industry it's bad name.

#10 Chrysopylae

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Posted 03 January 2008 - 07:31 PM

Before you take action, you might want to ask a few additional questions.

You said you are married. Does your spouse work? For himself or someone else? Does your spouse have a retirement plan at work? If your spouse has a retirement plan at work, are contributions matched? If so, what is the vesting schedule? If the vesting is not immediate, does your spouse plan to leave the company in the near future? Is your spouse maximizing contributions to his/her retirement plan at work?

If you consider opening an IRA: what is your combined AGI? do you file jointly or separately? Do you have any financial issues that could lead to a bankruptcy?

How much do you and your spouse plan to contribute to retirement each year?

Please note, I am not recommending that you divulge your personal financial information on a public forum.

Part of the reason I suggest answering the above questions is that you might have additional, more suitable options than your 403B or IRA. Also, depending upon your combined income, you may not be eligible to fund a Roth IRA in part or in whole. Regarding bankruptcy, if you might become bankrupt, then creditors may have access to certain types of retirement account funds, but not others.

#11 ft6

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Posted 04 January 2008 - 08:36 AM

QUOTE(tony @ Jan 2 2008, 07:33 PM) View Post

Jackie,

This is very little money. I would do the following:

1. Tansfer the money over to TIAA -CREFF and put it in one of their large cap growth funds. Then forget about it.

2. Maximixe your Roth option to the full amount and make sure your husband is doing so too . You both qualify for 4,000 each per year. Put this in a Vanguard Target Retirement Fund that coincides with your year of retirement. Contact Vanguard and they can help you with this process. They can even set up a monthly withdrawal from your checking account.

3. I would forget the 403B option all together at this time unless you plan on investing more than 8,000 a year.

This is a simple solution to your problem at this time. If you start to invest more than 8,000 a year the extra
that you invest can be put in a 403b account with your only good option which is TIAA-Creff.

Jackie. Please keep your expectations in check. Low fees are an important consideration and Vanguard and Creff are excellant choices but the market may only give you 7%-10% on average and opver time this will compound and serve you well. Short term show some patience and stay away from any hall hugging
salesperson selling annuities.



They could actually invest 5k per person in an IRA for 2008. The contributions have increased from 4k to 5k...

#12 Jackie

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Posted 04 January 2008 - 12:54 PM

Thank you all for your continued advice. My husband does work, as an insurance agent at a very small, family owned agency, and while he does not have access to a 401k, etc, we both have Traditional IRAs as well as ROTH IRAs at Vanguard. I also have other investment accounts through my school district - a VEBA that I can't contribute to, a 401a with TIAA-CREF that I can't contribute to, a Teacher's Retirement Fund that I can contribute to but the contributions are irrevocable, so I do have other options. We don't have any financial issues or troubles, don't plan on changing jobs, etc. I realize and agree that I have very little money invested with Smith Barney, but it just really irritates me that 1) I got taken by a salesperson 2) the money is performing so poorly and 3) they make it so difficult to roll your money once you realize your mistake.

#13 Chrysopylae

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Posted 04 January 2008 - 09:02 PM

Wonderful! Your husband should be able to help you with the details of the insurance contract.

In regard to the insurance contract (insurance is not my specialty) is the fund under-performance coming from the asset allocation, fees, or both? Since you seem to be concerned primarily with higher returns and very little with portfolio volatility, you might see if you can move your funds within the insurance product to a more aggressive allocation. You might also see if you can reduce some of the insurance costs that you don't want covered.

However, your better action might be to eat the surrender fees and go ahead and invest elsewhere now.

Here are some steps for a basic cost benefit analysis to determine if you should accept the surrender fees and move your money or leave it for the next 7 years.

First, determine your expected net return by leaving it where it is. For example, if you expect a 2% net return per year over 7 years, then calculate 1.02 ^ 7 = 1.15 (rounded). Take that return and multiply by your starting amount: 1.15 * $1,894.11 = $2,175.74. (I didn't round the calculation until the end.)

Second, determine your expected return by moving to a different investment option. Take your current amount and reduce it by the surrender charge. For instance, if your surrender charge is 10%, then $1,894.11 * 0.90% = $1,704.70. Now make an assumption on your expected rate of return. For example, if you expect a net return of 8% per year, then you would calculate your 7 year return this way: 1.08 ^7 = 1.71. Take that return and multiply by your starting amount: 1.71 * $1,704.70 = $2,921.56.

Compare the returns. In the hypothetical examples above, the net return after 7 years is $2,175.74 if you leave it inside the insurance product, and $2,921.56 if you take the surrender charge. In this hypothetical example, the conclusion would be to accept the surrender charge and move your money.

There are other ways to go about measuring the cost-benefit, of course. A major note, if someone provides you a mean return, make sure it is the geometric mean, NOT the arithmetic mean.

If you have any questions about the rational or methodology, please ask.