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Index Funds

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I was wondering if anyone has any info on the eligibility of the ishares index funds for 403b accounts. They are listed as funds, but are not RIC's. I have been unable to find anything that specifically lists if they are eligible. They have such low expense ratios that they seem like very viable alternatives to actively managed funds. Thanks

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ETF (ishares) are not allowed in 403(b)1 or 403(b)7, but could be allowed in a 403(b)9 which is for church organizations. For the typical 403(b) you cannot use ETF's as they are defined as stocks and stocks are not allowed. A company could offer a mutual fund account or VA subaccount based on ETF's, but this would increase the costs - though it could be offered. It would be nice to see ETF's available though they still have a commission associated with them and do have some administrative kinks that would need to be worked out.

 

ScottyD

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Thanks for your input. Our retirement dept is telling me the same thing. It is disappointing that we can't use these low cost, well diversified investments instead of mutual funds. Long term costs are much lower than even the Vanguard-type index funds and you have access to sector indexes. Have a good weekend.

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Advisor,

Your concern for the employees is admirable and sometimes I think we should be able to invest in the qqqs or iShares. However, it does not make much sense to compare ITFs with Vanguard or TIAA CREF expense ratios. ITFS are different investment and it is probably a good thing that 403bs cannot be invested in individual stocks (Enron and Worldcom come to mind). But all investments have a cost associated with its purchase or contiuning management operation, whether is an expense ratio or commissions. Most 403b investors don't know the costs of their fund or annuity, resulting in getting ripped off with expensive M & E insurance or paying horrendous commissions thinking they are getting good value for the service (i.e., hand holding). For the record and complying with IRS rules, Vanguard and TC have the lowest expense ratios of all 403b related companies with no commissions. Vanguard and TC are still my choices for low cost 403bs.

Steve

 

 

 

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Guest Erik

Scotty perhpas you can help me out here:

 

How/WHY are closed end funds which are exchange traded allowed in 403b7 accounts but not Index Traded Funds? I wouldn't recommend by closed end funds (or UITs) but I know(well think) that it can be done in a 403b.

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