Jump to content


  • Content Count

  • Joined

  • Last visited

Community Reputation

0 Neutral
  1. TR- Thank you for the thoughtful and well-expressed reply. I appreciate your measured response to my request for a dialog. I partly agree with you in that some people have no interest in learning about wise financial practices. Those folks make a choice to not plan at all or to plan with the assistance of a professional in the financial industry. For such individuals, in the majority of cases, the plan built by a professional planner will put them far ahead of the non-planners, non-savers, and lottery players. I am glad that such individuals have professionals to assist them achieve a measure of financial security. Professionals deserve to be compensated for their assistance and expertise in such cases. I respectfully take issue with your generalization about the willingness or ability of the American public . As I said above I agree some individuals are unwilling or unable to make a plan for their financial security. However, for many others the techniques to take full advantage of tax-advantaged investment plans are not too hard to grasp. I believe this website speaks to those willing and able to make a financial plan. I also believe the availability of low cost, high quality information through the Internet makes the probability of success for the individual investor higher than in previous decades. I suspect, based upon reading of your many dissents on this site, that you find the proportion of high quality information here somewhere between sparse and limited. However, your dissents and the contrary views of others here serve to weed out the low quality information and focus us on the concerns that truly deserve discussion and debate. In partial rebuttal to my own argument, I am most distressed by the number of people (and I work with many people who max out Social Security withholding in November) who are ignorant of the pricing of financial vehicles. I have recently returned to work after my short retirement and I will be on a quest to improve the 401K plan of my new employer. I think we can do better both to lower the corporate costs and to widen the choices of high quality, low cost investment vehicles available to our employees. TR, I wish you and those you love, the best for this holiday season. I hope all of us on this site can make and keep a New Years resolution to keep our eyes on the facts, identify our opinions as such, and disagree without being disagreeable. RTS
  2. All- An excellent opinion piece on this same topic by Steve Pearlstein of the Washington Post is at url: http://www.washingtonpost.com/wp-dyn/conte...6121901569.html Best wishes, RTS
  3. TR- You are correct, I don't know what you do. I have read all of your other previous posts and I gained the impression you were a licensed professional in the financial industry. I respectfully disagree that the issue is "your opinion isn't always right." The purpose for this site is for 403b and 457 investors to become better informed about using these financial vehicles. In the spirit of increasing the amount of wise advice for this community, I ask you again, what, in your view, is the most important consideration for investors choosing their 403b or 457 investments? Again, I thank you in advance. RTS
  4. TR- Your insulting posting behavior is why you get negative feedback, not simply because you criticize a poorly performing fund. This is a conversation but we don't accept the outmoded idea that financial sales people can justify their high fees for informed investors. Please be careful to distinguish between financial planners who avoid conflict of interest by not selling financial products other than their own expertise and financial sales agents who use a "suitability" standard of ethics to sell highly expensive financial vehicles. I suggest to you that the price we pay for a financial vehicle is one thing we can control. We cannot control future market performance for any asset class and we cannot control those who abuse their customers with marginal ethical standards. I believe your wisdom should always be welcome on this site. I would like to see more of the wisdom and less of the insults even if you disagree with my opinions or the opinions of others here. To attempt to continue this dialog in the direction of wisdom, I ask you to tell us, in your opinion, what is the most important consideration in investing. Clearly, you do not believe price of the vehicle is most important. Please let us know what you, as a licensed professional, believe is the most important investing consideration. I thank you in advance. RTS
  5. Hi Fitzanne- You can buy a used car for $10,000 or you can buy a used car for $20,000. Even the less expensive ones will get you to school on time most days. Even the expensive one will fail to start on certain cold mornings. Similarly, there are prices for financial vehicles. What every financial provider will tell you (usually in the fine print and not highlighted in the sales presentation) is to carefully consider the costs of the financial vehicle you are about to buy. Sadly, many people don't carefully consider the costs and compare the costs of financial vehicles. AXA sells variable annuities, one of the highest priced financial vehicles around. This is a 403b1 plan. Stay away from such plans. You want a 403b7 plan. The AXA rep may tell you that the 403b1 protects your beneficiaries better than a 403b7 plan. They charge about 1 per cent (100 basis points) or more each year to provide this protection. An independent financial analyst has shown such protection is over priced by a factor of 10 or 11. You can do better by investing in a low cost 403b1 plan which can cost only 10 to 20 basis points per year for the financial vehicle than you can by investing in an AXA 403b7 plan which costs 200 to 300 basis points per year. If you need immediate financial protection for your beneficiaries, buy term insurance. AXA, nor any other investment adviser, can claim to have a superior investing strategy that, in the future, will overcome the difference between in 20 and 200 basis points in fees. Don't make the AXA rep rich by paying too much for a financial vehicle that is overpriced by a factor of 10 or more. Take care of your own interests first by buying a low fee 403b7 plan. Such plans are sold by, among others, Vanguard, Fidelity, T Rowe Price or TIAA-CREF. If the AXA rep won't or can't go with a 403b7 plan, end the meeting quickly so as not to waste his time and yours. I suspect you will have a short meeting. Best wishes, RTS
  6. Hi McCook27- I can't answer your Illinois-specific aspects, but the FICA-Medicare withholding of 1.45% will apply to the full amount before the 457 deferral. In your example, $29 per pay period would be withheld for FICA-Medicare based on (0.0145 multiplied by 2000). According to url http://www.revenue.state.il.us/Businesses/.../individual.htm you may call 1 800 732-8866 or 1 217 782-3336 with questions regarding the proper amount of Illinois withholding on your paycheck with respect to your 457 tax deferred income. Best wishes, RTS
  7. All- Here is the language from the Pension Protection Act of 2006 regarding non-spouse beneficiaries: Pension Protection Act of 2006 (Enrolled as Agreed to or Passed by Both House and Senate) SEC. 829. ALLOW ROLLOVERS BY NONSPOUSE BENEFICIARIES OF CERTAIN RETIREMENT PLAN DISTRIBUTIONS. (a) In General- (1) QUALIFIED PLANS- Section 402© of the Internal Revenue Code of 1986 (relating to rollovers from exempt trusts) is amended by adding at the end the following new paragraph: `(11) DISTRIBUTIONS TO INHERITED INDIVIDUAL RETIREMENT PLAN OF NONSPOUSE BENEFICIARY- `(A) IN GENERAL- If, with respect to any portion of a distribution from an eligible retirement plan of a deceased employee, a direct trustee-to-trustee transfer is made to an individual retirement plan described in clause (i) or (ii) of paragraph (8)(B) established for the purposes of receiving the distribution on behalf of an individual who is a designated beneficiary (as defined by section 401(a)(9)(E)) of the employee and who is not the surviving spouse of the employee-- `(i) the transfer shall be treated as an eligible rollover distribution for purposes of this subsection, `(ii) the individual retirement plan shall be treated as an inherited individual retirement account or individual retirement annuity (within the meaning of section 408(d)(3)©) for purposes of this title, and `(iii) section 401(a)(9)(B) (other than clause (iv) thereof) shall apply to such plan. `(B) CERTAIN TRUSTS TREATED AS BENEFICIARIES- For purposes of this paragraph, to the extent provided in rules prescribed by the Secretary, a trust maintained for the benefit of one or more designated beneficiaries shall be treated in the same manner as a trust designated beneficiary.'. (2) SECTION 403(a) PLANS- Subparagraph (B) of section 403(a)(4) of such Code (relating to rollover amounts) is amended by inserting `and (11)' after `(7)'. (3) SECTION 403(b) PLANS- Subparagraph (B) of section 403(b)(8) of such Code (relating to rollover amounts) is amended by striking `and (9)' and inserting `, (9), and (11)'. (4) SECTION 457 PLANS- Subparagraph (B) of section 457(e)(16) of such Code (relating to rollover amounts) is amended by striking `and (9)' and inserting `, (9), and (11)'. (b) Effective Date- The amendments made by this section shall apply to distributions after December 31, 2006. End excerpt. I note the language refers to " deceased employee" vice "deceased retiree." If willwork's relative was an employee at the time of his passing, then, it appears, willwork can establish an inherited IRA with the inherited 403b assets after December 31, 2006. Alternatively, it is unclear to me if willwork's relative were already retired at the time of his death, if this provision of law permits the eligible distribution of the inherited 403b assets into an inherited IRA. I invite others here to correct, clarify, and amplify further. Special thank you to 403bagent for your contribution of wisdom to this string! Best wishes, RTS
  8. Hi willwork- The IRS publications on this matter are not clearly written for us ordinary citizens who are not CPAs, tax attorneys, or IRS enrolled agents. I looked at Pub 571 and Pub 575, available for download at www.irs.gov. With the caveat that this is my personal opinion and I am not a tax attorney: Option 4 (change to a different carrier plan) may permit you to make a section 1035 exchange (which is a tax-free exchange) for another annuity contract. I would call a low fee annuity company: Vanguard (1-800-522-5555) , TIAA-CREF (1 800 223-1200), or Fidelity (1 800-544-4702) are some options. Fidelity will provide you an annuity cost comparison, at no charge, so you can see the apples to apples amounts for each type of fee charged under the VALIC contract you inherited and fees charged under a Fidelity contract. Fidelity has annuity products with total fees under 50 basis points. According to Lipper data printed on page C8 of the October 23, 2006 Wall Street Journal, the lowest total expense cited on a VALIC variable annuity was 100 basis points. VALIC has multiple options at this expense ratio according to the same reference. Therefore, if option 4 will not give you a tax-free option to gain lower fees and maintain the longest possible tax deferral on your inherited 403b assets, you may wish instead to transfer to one of the lowest fee Valic products available. You mentioned "income lock." Usually such annuity provisions result in an additional fee. If this is indeed the case, you may well wish to avoid paying the extra fee. Based on my readings regarding variable annuity fees, the fees for such add-on features paid by the customers actually go into three bins 1) a reserve to pay for the benefit if it is triggered, 2) additional company profit, and 3) additional remuneration to the annuity sales staff. From reading the IRS publications and the nature of your relatives' annuity at the time of passing, I was unable to ascertain the mandatory distributions you would be required to take. If your inherited amount is large, you may wish to contact the IRS by phone and inquire regarding the mandatory distributions you must take. Keep in mind the two triggers--the calendar year you retire or by April 1 of the year following the calendar year you reach 70 and one half. It would be great if you could defer taxes on the accumulation of your inherited 403b until then--but i am not sure you can. If the IRS does not give you a clear answer over the phone, you may wish to hire a fee-only financial adviser to go through your options. The fee-only adviser part is essential, in my opinion, because the adviser will have no actual or potential conflict of interest in selling you a product for commission remuneration. I invite others here to clarify, correct or amplify. Best wishes, RTS
  9. Hi VAteacher- I agree you should consider all of your investments taken together when assessing your diversification. It would be fine if 100 per cent of your 403b were in one asset class and 100 per cent of your Roth IRA were in another asset class and 100 per cent of your emergency savings funds were in another. You may also wish to consider the assets of your spouse (if applicable) and your parents (if applicable.) For example, I discovered my mom had a large accumulation in a retirement account in a certain mutual fund with a 100 basis point expense ratio. If my mother predeceases me, her will says I will get an equal share of her estate with my other siblings. At the same time, my spouse had accumulated a not-as-large amount in the same exact mutual fund! While this is the kind of problem one likes to have, clearly some effective communication between family members allowed us to revise our overall family portfolio, improve diversification, and go with lower cost mutual funds and a stock portfolio in our respective retirement accounts. Because we considered our entire set of family investments, we were able to avoid being overly concentrated in one mutual fund or one asset class. We also identified lower fee providers to pursue our investment plan. Mutual fund providers often will waive initial investment minimums if you agree to regular periodic investments. Once you accumulate up to a certain level you can transfer within your retirement account to a lower fee fund. It will be an added burden to hold your 403b with USAA, IRA with another provider and your emergency savings with another but it is doable and you can keep a low fee orientation. Best wishes, RTS
  10. Hi Mike- Caveat: This is my personal opinion and I am not a tax attorney. Short answer: no The IRS web site is http://www.irs.gov/retirement/article/0,,id=96315,00.html This was cut and pasted from an IRS briefing on 457b plans. It explains the events that permit you to access the 457 funds: Not earlier than: – Age 70 & 1/2 – Severance from employment – Unforeseeable emergency – Elective/Cash Out up to $5,000 • One time • 2 year requirement 457(e)(9)(A) I invite others here to scrutinize this personal opinion and offer corrections, clarifications, or refinements. Best wishes, RTS
  11. Hi Jon- AM Best (http://www.ambest.com/ratings/about.asp) rates insurance companies. They provide "an independent third-party evaluation that subjects all insurers to the same rigorous criteria, providing a valuable benchmark for comparing insurers, regardless of their country of domicile." Their words. Moodys rates insurance companies as part of its business. (http://www.moodys.com/cust/default.asp) Fidelity (http://personal.fidelity.com/myfidelity/InsideFidelity/index_NewsCenter.shtml?refhp=c) is "the largest mutual fund company in the United States and is one of the world's largest providers of financial services for more than 22 million individuals." As of earlier this year Fidelity had 1.28 trillion USD in total managed assets. Once again, their words. So, the financial strength and stability question arises for two different products: variable annuities (combined insurance and an investment vehicle) and mutual funds (diversified investment vehicles.) With respect to your 403b decision, insurance companies want to sell you insurance with your 403b investment in a 403b1 plan. Fidelity provides 403b7 plans which do not include insurance. Some other vendors of 403b7 plans include T Rowe Price and Vanguard. In my opinion, if you believe you need insurance buy low cost term insurance separate from your 403b. The "mortality and expense" fee charged in a 403b1 is used to 1) make good on insurance claims, 2) compensate commission-compensated sales staff, and 3) increase corporate profit. One study indicated that only 3 of every 1,000 403b1 plans have a mortality claim. This would indicate that sales staff and corporate profits are the primary destination of the mortality and expense fees in a 403b1 plan. In general, 403b7 plans have lower on-going expenses and will result in a larger accumulation of assets in your account. My opinion: avoid 403b1 plans and use a 403b7 plan from a low fee provider. Best wishes, RTS
  12. TR1982- We ask for your wisdom and you provide unconstructive criticism in return. I ask that you refrain from such behavior in the future. RTS
  13. TR1982- Please feel free to respond to my questions despite the possible belated response (or declination of response) of others to this forum. If you can document a better way to retirement security with high fee 403b1 plans, we await your insights! RTS
  14. TR1982- Shame on me for what? I don't profess to think for you or anyone else in this community. You and others here have the complete right to think whatever they want. I do think that by becoming better informed about fees and expenses investors can better understand the value of different courses of action. Because numerous independent thinkers have identified variable annuity costs as outweighing the benefits, I believe 403b investors are better off in a low fee 403b7 plan than in a high fee 403b1 plan. It might show you that "the emperor has no clothes" to Google "variable annuity fees" and read through the first 20 articles posted on the web. Several of those are from the SEC and NASD. TR1982 if you've got better information, please let us know so we can embrace high fee variable annuity providers. We would like for such data to be validated by widely accepted actuarial techniques to compel us to change our views. If not, please be adult enough to admit the independent data and scholarship regarding variable annuity fees doesn't support your argument that maybe Valic is a better deal. There are variable annuity providers that charge mortality fees much lower than the 75 bp to 125 bp fees of Valic. Even then those lower fees are in addition to the underlying expense ratios of the investment vehicle. I ready to accept the value of your wisdom. What your dismissive replies have shown me so far isn't much to compel me to change my view that 403b investors are better served in low fee 403b7 plans than high fee 403b1 plans. In response to your question, I do not charge anyone for portfolio management. I manage my spouse's portfolio, my personal portfolio, and advise my parents and in-laws on their portfolios. I do not have auditable records of my portfolio's performance from the early days of my investing experience. I do know now that by using low fee (as low as 7 bp) mutual funds in tax sheltered accounts and separate term insurance policies, I am better off than if I had purchased a variable annuity product with a 200 to 300 bp total expense ratio. As a courtesy to all of the members of this community perhaps you could explain what method you use to charge for portfolio management and what metrics you use to describe the performance of your clients' portfolios. If you have a better way with variable annuities please dazzle us with independently verifiable facts. My questions to you from my earlier post remain on your table for an answer. I say again, state your case for Valic, et al, and please provide facts, not sniping, for all of us to consider. RTS
  • Create New...