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Granite

Valic Vs Roth Ira

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I'm a teacher who has just accepted a new job in more financially secure district. This district offers to match employee retirement contributions up to 4% of their annual salary but they will only put the money into AIG's VALIC annuity. My old district gave no matching monies for retirement so I've been putting money into a ROTH IRA (T Rowe retirement 2030 fund).

 

Here's my question...I do not know much about the VALIC annuity, but I assume the fees are much higher than my T Rowe Price fund. Is it better for me in the long run to take the free money and contribute 4% into VALIC or am I better off just continuing to put money into my ROTH? I assume I would be stupid to NOT take the matching contributions no matter what VALIC's fees. Any opinions or thoughts?

 

Another piece of info is that I only see myself staying in this district for maybe 5 years before returning to my old district (long story...short answer, I will be commuting a long distance for the new job)

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Hi,

I would take the match by contributing only 4%. Then go ahead and continue with funding your Roth IRA. The free money will make up for the high fees of Valic. Best Wishes.

 

Joe

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Guest TR1982

Joe,

That's quite a statement given the fact that you really know almost nothing about the costs of the Valic program or the specifics of the matching program.

 

Granite, you owe YOURSELF the chance to find out the specifics of this and then decide. Why would you do anything else?

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I agree with Joe. If Joe doesn't know about the costs its because they are so well hidden in these annuity products. That is what makes the annuity option so deceitful. I would take the match but no more.

 

You ARE paying big time fees and costs with Valic!!!! They are just hidden and hidden very well. The administrative fees are usually fairly visible and comparatively minor - in the neighborhood of $25 or $50. Look for M&E fees and all other kinds of charges in addition to the expense ratio E.R. of the funds and add them up. These numbers may be disguised i.e. .0100 of all assets. For instance $4.00 plus overall management which ranges from .0035 to .0100 depending on what the mutual fund company pays them. This means that there's a surcharge of 1% on ALL of your money and ALL of your earnings on the vanguard funds and this doesn't include the E.R. and/or M&E fees.

 

Read the prospectus and plan documents with a magnifying glass and add them all up. Getting vanguard

through an insurance/annuity IS NOT THE SAME AS GETTING IT DIRECTLY FROM VANGUARD or any other major mutual fund company. Some folks just can't process that fact.

 

I will say one positive thing about Valic. They have one fund, The Valic II Mid Cap Value which made the

morningstar honor roll of marketing beating funds.

 

 

 

 

 

 

 

 

 

I'm a teacher who has just accepted a new job in more financially secure district. This district offers to match employee retirement contributions up to 4% of their annual salary but they will only put the money into AIG's VALIC annuity. My old district gave no matching monies for retirement so I've been putting money into a ROTH IRA (T Rowe retirement 2030 fund).

 

Here's my question...I do not know much about the VALIC annuity, but I assume the fees are much higher than my T Rowe Price fund. Is it better for me in the long run to take the free money and contribute 4% into VALIC or am I better off just continuing to put money into my ROTH? I assume I would be stupid to NOT take the matching contributions no matter what VALIC's fees. Any opinions or thoughts?

 

Another piece of info is that I only see myself staying in this district for maybe 5 years before returning to my old district (long story...short answer, I will be commuting a long distance for the new job)

 

 

 

 

 

Also YES to investing in your roth. Its basically tax free money on your gains. Invest directly with a mutual fund company in a low cost fund. Call the 800 number or go to their website and download the forms.

 

Stay away from advisors that sell insurance products,

 

Tony

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I would agree with the info you have been getting. My wife is in a similar situation to you. She has only insurance options through her 457. She is investing the max amount in Trowe 2045 fund in IRA. Once that is maxed, she invests in the best of her options, which happens to be ING (in her case). But, she is basically flushing 1.5-2.0% in returns down the toilet every year by having to invest in a mutual fund sub account through an insurance company. Actually, I just got done looking at her YTD returns in her ING funds and comparing them to the actual mutual fund represented in the sub account. Bottom line, every one of her funds returned about 1.5-2% less than the equivalent mutual fund.

 

All of that being said, the 4% match is likely to offset the high fees. However, you should definitely figure out EXACTLY what the fees are in your AIG option. There are usually several fees under many different names. Once you know precisely what the fees are, and what your investment options are you can make a better decision. I think it is likely that you are on the right track though in considering the 4% first, the IRA second, and then once those are maxed out, you will need to reassess and go from there.

 

No matter which direction you go, find out the real details first so that you can feel confident in your decision.

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Here is a GENERAL comparison of the two options. This does not take into account tax benefits of withdrawing roth money vs. withdrawing annuity money - maybe someone, with more knowledge than me could shed light on that - I am not overly knowledgeable about it, but isn't annuity withdrawal charged at a high rate (as ordinary income) which can hurt as well. Again, someone who knows more than I do, can you expand on that.

 

Anyway, using the calulator here: http://tcalc.com/savings-amount-calculator.html

 

Assuming $50,000 income (just because the math is easier) 4% of your income is 2000. So, if you plug in 2000 per year (167$ per month) for 30 years at 10%, you get $377,500. This would be representative of your IRA option.

 

Take the $2000 plus $2000 match (334$ per month) for 30 years at 8% (assuming a loss of 2% for investing in an annuity product) and you come up with $497, 780. This would be representative of your employer match option.

 

The above is absolutely NOT representative of the actual numbers which may be involved with your specific situation, simply a general illustration that investing more money, at a lower rate of return, over time will result in a bigger nest egg than investing half as much and getting a better return. There is a lot more to it than that though - Tax issue being one, actual expenses of your choices being another etc.

 

In regard to your staying only 5 years. The same general pattern would show up. I think the numbers for $10000 invested for 25 years at 10% comes around $120000 and $20000 invested for 25 years at 8% comes in at around $145000. So, some of your decision would have to do with how long that money is giong to sit. The shorter time it sits, the better deal the company match and high fees are. The longer it sits, the better deal no match and low fees are. All based on these general assumptions though .

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Thank you all for the advice and opinions. If at the end of 5 years I go back to my old district, Is it possible to move the VALIC money into my ROTH. If so would I most likely have to pay a penalty of some kind?

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Granite

 

I may be wrong here but I am not sure you can transfer your money out of your 403b tax free. You would have to pay taxes first then you could put it in the roth IRA upon your retirement or leaving your current employer.

 

If you do so before retirement The 10% IRS penalty would apply

 

Also I am sure valic has surrendar fees tyou would have to pay.

 

If this information is wrong someone will correct it.

 

Hope this helps

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Lots of good advice already. I just would add to TR1982 that you could supply the information you know about annuities. You have been around and might be part of a constructive solution. Ongoing "ragging" only tends to denegrate this site where people are looking for solutions and not the rantiings of a discontent. Best of fortunes, Dan

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Another angle, fees aside, are you confident that your Roth investments will return 100% on your contributions? Because regardless of the fees, the district is offering you a 100% return on your investment up to 4%. Even if you put it in cash and pull a 3% return, I don't see that as a bad idea. Max out the 4% and put any additional money into your Roth if you so desire. Move back to the other district and roll it over in 5 years; Valic does have products that are surrender free in 5 years or at separation from service. I would be more concerned with the districts vesting period, did I miss that detail somewhere in the post? If their vesting is >5 years and you're CERTAIN that you won't be there that long, this post was for naught because you'll never own their money.

 

Hope you're enjoying the summer!

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Hello everybody -

 

I'm a first time poster here, trying to get some good info for my retired [30 yr teaching] relative. I am primarily a "lurker".

 

Not meaning to hi-jack someone else's discussion, but I came upon this post and just wanted to insert my $.02 and agree with Tony and his statement about the problems in transferring assets from a 403b to a ROTH. The 403b is tax-deferred in nature and the ROTH is AFTER-tax in nature so that the two are not compatible for a direct transfer under most circumstances. If the investor is older than 59 years of age he/she will not suffer the major withdrawal penalty taking assets out of the 403b plan, but will have to pay taxes at the current rate prior to sending the remainder over to the ROTH.

 

Roger

 

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Hello everybody -

 

I'm a first time poster here, trying to get some good info for my retired [30 yr teaching] relative. I am primarily a "lurker".

 

Not meaning to hi-jack someone else's discussion, but I came upon this post and just wanted to insert my $.02 and agree with Tony and his statement about the problems in transferring assets from a 403b to a ROTH. The 403b is tax-deferred in nature and the ROTH is AFTER-tax in nature so that the two are not compatible for a direct transfer under most circumstances. If the investor is older than 59 years of age he/she will not suffer the major withdrawal penalty taking assets out of the 403b plan, but will have to pay taxes at the current rate prior to sending the remainder over to the ROTH.

 

Roger

 

 

 

 

Hello everybody -

 

I'm a first time poster here, trying to get some good info for my retired [30 yr teaching] relative. I am primarily a "lurker".

 

Not meaning to hi-jack someone else's discussion, but I came upon this post and just wanted to insert my $.02 and agree with Tony and his statement about the problems in transferring assets from a 403b to a ROTH. The 403b is tax-deferred in nature and the ROTH is AFTER-tax in nature so that the two are not compatible for a direct transfer under most circumstances. If the investor is older than 59 years of age he/she will not suffer the major withdrawal penalty taking assets out of the 403b plan, but will have to pay taxes at the current rate prior to sending the remainder over to the ROTH.

 

Roger

 

 

 

Prowler,

 

Welcome to the board. Stop lurkey and join in!!

 

Thanks for the back-up on that 403b-Roth topic. It(403B) could be rolled over into a self directed IRA which could be accomplished by simply a separation of service. I guess any way you look at it you will not get money out of a 403b plan and into a roth without somewhere along the line paying taxes on that 403b investment.

 

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