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How To Get Out Of A 403(b)?

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I am somewhat recently married (1 year).

 

I just discovered that my wife, who is a teacher, started a 403(b) about two years ago with AXA-Equitable. I looked through the fine print and it is HORRIBLE! The fees are outrageous.

 

Oh, we are both 28.

 

After doing some more research (of course), I want to help her leave her 403(b) and move to something better like a Roth IRA.

 

My questions are:

 

Is there a way to "roll-over" the funds in the 403(b) into an IRA run by a different company (I don't trust AXA-Equitable after seeing the financial-lemon they sold to her)? If so, how does one go about doing that? Does she just call up her AXA rep?

 

If not, what would you suggest doing? Simply stop placing money in the 403(b), consider it a sunk cost, and hope that maybe some growth will occur over the next several decades?

 

Any thoughts would be most appreciated.

 

Thank you

 

Oh, and as a followup question.

 

My philosophy is that anyone who claims that they are able to "beat the market" is either a liar or ignorant.

I prefer to invest in a basic S&P 500 index in a fund with the ABSOLUTE lowest fees.

 

Which institution has the lowest fees nowadays? Is it Vanguard?

 

I keep thinking of additional questions... Sorry 'bout that. :-)

 

Anyhow...

 

It is my understanding that with a Roth IRA you can only contribute $4,000 per year per person.

If she was able to contribute more than that, what would you suggested... just placing ever dollar above the 4K in a NON-ROTH IRA?

 

Thanks once again

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Congratulations on your recent marriage. I wish you a long, happy life together.

 

In order to roll 403(b) funds into an IRA, your wife would have to qualify for a distribution. The Internal Revenue Code generally prohibits distributions unless a "qualifying event" occurs. These include death, disability, severance from employment or attainment of age 59½. Basically, unless she quits her job, she can't roll the money to an IRA.

 

There is another possiblity. She may be able to transfer her 403(b) account to another product vendor. Such transfers are commonly referred to as "90-24" transfers in reference to the Revenue Ruling allowing them. I suggest that she check with the employee benefits department (or whoever administers the 403(b) plan where she works) to see if there are other preferable vendors to which the money could be transferred.

 

Keep in mind that the current product may have surrender fees involved, so it may be advisable to simply redirect her salary reduction contributions to a better product vendor and let the existing funds "age" until the fees are reduced or eliminated.

 

The Roth IRA contribution limits for 2006 and 2007 are, indeed, $4,000. Moreover, they are co-ordinated with contributions to other IRAs. For example, if you make a $3,500 Roth IRA contribution, you are limited to a $500 contribution to a traditional IRA. So, if she makes the $4,000 maximum contribution to a Roth IRA, she should consider putting additional savings into another type of account. Maybe a tax-exempt bond fund could be considered to parallel the income tax free characteristics of a Roth IRA.

 

I hope this is of some benefit to you. Best of luck to you both!

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Sir,

Thank you tremendously for taking the time to address my question. I truly appreciate it. The information you provided was both helpful and enlightening.

 

Thank you

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Among the vast majority of insurance companies available to investors in the 403b industry, there are a few no load, low expense fund companies . Some of these, but not inclusive are Vanguard, Fidelity, TIAA Cref, Troweprice, usaa. These are worthwhile investments that are worth your consideration. I wonder, what your knowledge is of these type fund companies, and how to make investments?

 

Financial education is extremely important. You can start with Teach and Retire Rich from this site, or common sense on mutual funds by John bogle.

 

ira

 

 

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Here is anyother 'interesting' problem I have run across. As I have mentioned, we would like to start directing the money that is currently going to the 403(b) into a ROTH IRA. I have been told by many people that Vanguard is the best bet (lowest expense). The problem I have run into is that Vanguard requires THREE THOUSAND DOLLARS upfront to start an IRA. We can't pull the money out of the 403(b) and move it to the IRA and we don't have 3 Grand just sitting around. Talk about a being between a rock and a hard place. I am really upset that Vanguard would require three thousand dollar to start an IRA. Are there any companies that have similar low expense IRAs but don't require this amount to start?

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I might be mistaken, but I think you can start a Roth IRA at Vanguard with $1000 in their STAR fund. It's a more conservative fund, but at least it's a start. Just save up for a lump sum and open a Roth when you can. It's after tax dollars anyway. Beware that Vanguard charges $2.50 per quarter for a fund that contains less than the minimum holding requirement too. For most retirment funds. a balance of $5k is needed. Still, even with that, Vanguard's fees are way lower than AXA's 2.5%, right?

 

By the way, I was in the same boat. I'm 30 and have been investing with AXA for five years. I just stopped contributions. I'm going to try and wait until the surrender fee period is over. In the meantime, I just opened up a Vanguard Roth IRA and I also opened a 403(b) with T. Rowe Price.

 

The books everyone recommended are great. So far, in the past few months, I've read Mutual Funds by John Bogle, The boglehead's guide to investing, Mutual Funds by Morningstar, The Four Pillars of Investing by Bernstein among a few others. I highly recommend all of them.

 

I also recommend Smart Couples Finish Rich by Richard Bachs. This is a great FIRST book to read. My husband and I read it together and it helped us to set up our entire financial plan--short term, mid range, long term and for retirement. It's what sparked our interest into looking into investing.

 

Good luck

 

 

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Odd. According to 403bcompare.com, the AXA Equitable EQUI-VEST (Series 200) 403(b) fund has expenses of 1.34 percent. 1.34 is by no means 'low', but I thought it was much higher than that.

Am I missing something?

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I believe the 1.34% is the mortality fee in addition to the fees of each fund that you have. If you continue further on that site and click on the link that discusses specific funds, each fund has an expense ratio as well. They range from 1% to 1.8%. This doesn't include the annual $30 fee if the account falls below the minimum. Finally, there are 12 years of surrender fees! Yikes.

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I have an annuity with Valic. I have been in the program over the basic penalty phase of five years. I have made a request through the superintendent for the following:

 

1. A direct asset transfer through 94-20.

2. The board revisit it's agreement with Valic.

3. A copy of the original contractual agreement between the board and Valic.

 

While each school system has some variance in their plans with Valic, I would imagine most of them in Georgia, my home state, are pretty similar.

 

If you have some basic knowledge or insight about these type plans, please share it with me. I am determined to rechart my disasterous financial course!!!

 

febarnes

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Hi febarnes,

 

Am I understanding that you wish to transfer the Valic annuity to another provider?( I'm assuming that this is within a 403b plan?) Which provider(s) are you considering?

 

Also surrender charges are generally on a five year rolling basis, so the money you put in over 5 years ago can be transfered without penalty, while the rest will take five years to be completely free of surrender charges. I suggest that you look at your contract.

 

What have you done to develop financial knowledge since you first bought the Valic annuity?

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Vanguard tries to keep its costs down by not having lots of "little" accounts..so they require a minimum..The companies that charge a lot are not as particular since they get a large part of you money. The good news is that you are on the path to learning, changing, stopping, investigating at such a young age. The pain of being "taken" by a salesperson is part of the learning curve for most of us..and certainly was for me..but consider the poor fool who doesn't investigate and trusts that the insurance companies will take care of their retirement..and realizes all these costs represent their money NOT earning anything..but going into the salesman/insurance company pockets...Quite a rip-off...Congratulations on getting wiser! Dan

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I have an annuity with Valic. I have been in the program over the basic penalty phase of five years. I have made a request through the superintendent for the following:

 

1. A direct asset transfer through 94-20.

2. The board revisit it's agreement with Valic.

3. A copy of the original contractual agreement between the board and Valic.

 

While each school system has some variance in their plans with Valic, I would imagine most of them in Georgia, my home state, are pretty similar.

 

If you have some basic knowledge or insight about these type plans, please share it with me. I am determined to rechart my disasterous financial course!!!

 

febarnes

 

 

Ira:

 

I have employed an independent financial advisor service. I have followed my personal account closely. It has produced zero growth. There are low risk index funds that will produce 6 to 10 percent growth over the long term. While Valic may be working for some , it is not for me. Therefore, I have requested a change of vendor. Vanguard offers index funds with an expense of .18-.25 percent. One in particulart i like is the total stock market fund. The fee structure for these funds may be found on the internet. I have also discussed this move with Vanguard to verify my information. While I am no expert, there are some professionals that call my current annuirty program a " dog" because it just want hunt.

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