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doug91

Help Selecting A 403b (or Not)

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Hi. I married a teacher and have just started looking into her 403(b) options. They're pretty grim, from what I can tell. We're not eligible for Roth plans because of my income, and we're in good financial shape (e.g. no obvious high-interest debts to pay down), so it seems like it would be nice to take advantage of the tax deferred options -- I've always tried to max out my 401Ks.

 

I know one option is to try to get her district to add a decent provider, but there are pretty significant hurdles, include a qualification process and then a subsequent 35-person minimum enrollment before payroll deductions are allowed... and since we're OK generally, it doesn't seem worth the effort.

 

So, looking at the companies below, would this board advise:

a) Picking a not-terrible company (e.g. Oppenheimer or Merrill) and find their lowest expense index fund (if any)?

b) Skipping it entirely and just put her surplus into a taxable investment account?

c) Doing more research, because you can't tell the quality of the offering just by seeing the company name?

 

Here are her options:

Traveler's Insurance Company Services

AIG/VALIC

Oppenheimer Mutual Funds (this one seems chancy, though -- the 'approved solicitor' lists his home phone number as the contact... would an Oppenheimer rep really do that?)

Franklin Life Insurance

ING

MetLife

Waddell and Reed

Western Reserve / ARK

Life Insurance Company of the Southwest

Primerica

Legend Equities

Merrill Lynch

State Farm

Pacific Life Insurance

 

(Source document is http://www.leon.k12.fl.us/Public/Person/cu...SA_listing.pdf)

 

Thanks in advance for any tips on the above.

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Yikes. Without knowing your situation it may indeed make sense to go low-cost taxable. Have you tried to speak with her employer? Here's a source that may help. Good luck!

 

Dan Otter

 

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Hi. I married a teacher and have just started looking into her 403(b) options. They're pretty grim, from what I can tell. We're not eligible for Roth plans because of my income, and we're in good financial shape (e.g. no obvious high-interest debts to pay down), so it seems like it would be nice to take advantage of the tax deferred options -- I've always tried to max out my 401Ks.

 

I know one option is to try to get her district to add a decent provider, but there are pretty significant hurdles, include a qualification process and then a subsequent 35-person minimum enrollment before payroll deductions are allowed... and since we're OK generally, it doesn't seem worth the effort.

 

So, looking at the companies below, would this board advise:

a) Picking a not-terrible company (e.g. Oppenheimer or Merrill) and find their lowest expense index fund (if any)?

b) Skipping it entirely and just put her surplus into a taxable investment account?

c) Doing more research, because you can't tell the quality of the offering just by seeing the company name?

 

Here are her options:

Traveler's Insurance Company Services

AIG/VALIC

Oppenheimer Mutual Funds (this one seems chancy, though -- the 'approved solicitor' lists his home phone number as the contact... would an Oppenheimer rep really do that?)

Franklin Life Insurance

ING

MetLife

Waddell and Reed

Western Reserve / ARK

Life Insurance Company of the Southwest

Primerica

Legend Equities

Merrill Lynch

State Farm

Pacific Life Insurance

 

(Source document is http://www.leon.k12.fl.us/Public/Person/cu...SA_listing.pdf)

 

Thanks in advance for any tips on the above.

 

Wow, these are really some really poor choices. All that is missing is Modern Woodmen of America. Consider a tax-efficient taxable account. You might also determine if your wife's district could opt into your state's 457 plan.

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Hi. I married a teacher and have just started looking into her 403(b) options. They're pretty grim, from what I can tell. We're not eligible for Roth plans because of my income, and we're in good financial shape (e.g. no obvious high-interest debts to pay down), so it seems like it would be nice to take advantage of the tax deferred options -- I've always tried to max out my 401Ks.

 

I know one option is to try to get her district to add a decent provider, but there are pretty significant hurdles, include a qualification process and then a subsequent 35-person minimum enrollment before payroll deductions are allowed... and since we're OK generally, it doesn't seem worth the effort.

 

So, looking at the companies below, would this board advise:

a) Picking a not-terrible company (e.g. Oppenheimer or Merrill) and find their lowest expense index fund (if any)?

b) Skipping it entirely and just put her surplus into a taxable investment account?

c) Doing more research, because you can't tell the quality of the offering just by seeing the company name?

 

Here are her options:

Traveler's Insurance Company Services

AIG/VALIC

Oppenheimer Mutual Funds (this one seems chancy, though -- the 'approved solicitor' lists his home phone number as the contact... would an Oppenheimer rep really do that?)

Franklin Life Insurance

ING

MetLife

Waddell and Reed

Western Reserve / ARK

Life Insurance Company of the Southwest

Primerica

Legend Equities

Merrill Lynch

State Farm

Pacific Life Insurance

 

(Source document is http://www.leon.k12.fl.us/Public/Person/cu...SA_listing.pdf)

 

Thanks in advance for any tips on the above.

 

 

Honestly, I think it is too hard to pick a company by name. I know for sure that MEt offers like 10 different products ... Same with ING ... So does Valic ... You really should have this conversation with your financial advisor ... I mean it all depends on how much qualified money you have and If you really need the tax breaks ... So thats my advice ... And YES the Opp guy wuld list his home phone number !!

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I contacted ING, since another group told me that they would probably have some decent offers. It's actually ING Reliastar that happens to offer 403(b)s, so we're back with life insurance companies... and it shows! Check out these numbers on their mutual funds and fixed annuities:

 

Mutual funds (ING Advantage Century):

- Annual "account charge" of 1.4%.

- $30 annual adminstrative fee

- Deferred sales charge over 6 years, as follows: 7%, 7%, 6%, 5%, 4%, 2%

 

So for mutual funds, you're paying an 8.4% expense ratio (plus $30) for your first two years!

 

Fixed annuity (QuintaFlex)

- No fees

- No withdrawal charge after 5 years of receipt of premium (5% during years 0 - 5)

- Guaranteed minimum interest of "1.0% to 3.0%"

 

When I called the rep to clarify this, he said that the guaranteed minimum interest can apparently fluctuate over the life of the annuity (which hardly makes it fixed, does it?), which if true, means that the only true guarantee is 1.0% interest. His statement sounds wrong to me -- I thought that you locked in the fixed rate when you entered the annuity contract -- but after looking at the mutual fund numbers, I'm prepared to believe anything.

 

Does this jive with what others have seen? If so, who USES these things?

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So for mutual funds, you're paying an 8.4% expense ratio (plus $30) for your first two years!

 

 

 

I must be missing something. I can't imagine you paying that much. I think you may be adding in the surendar charge?

 

 

Look, I think this sounds complicated/ambiguous enough that you don't need to get involved in it.

 

Do the Roth IRA thing and taxable accounts. Go with Vanguard or Fidelity or TRowe Price. Forget Annuities.

 

If I were in my twenties and thirties again and knew then what I know now I would run not walk from these insurance companies.

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Hi Doug,

Saw your post at the diehards site. IMO, stay away from all of these companies. As you have already found out, the more you poke around the more you will find out that they are wolves in sheep's clothing. As hard as it may seem to get 35 people to enroll in a no load in order for your district to add one, it may not be as difficult as you think. It may take 6 months or a year to get 35 people, but compared to a career in teaching for 25-30 years, that 1 year will be well spent.

Just start asking around. You might be surprised how many other teachers are thinking as you do.

Take care and good luck,

Steve

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So for mutual funds, you're paying an 8.4% expense ratio (plus $30) for your first two years!

 

 

I must be missing something. I can't imagine you paying that much. I think you may be adding in the surendar charge?

 

 

 

I got that number by adding the 1.4% adminstrative fee to the 7% "deferred sales charge" that's incurred in the first and second years of the plan. With some Googling, it does appear that that deferred sales charge is the same thing as a back-end load (why with the jargon??), so if I'm reading it right, the 7% is only incurred if there's a sale of the mutual fund. It's still 1.4% + the mutual fund ER for the 'privilege' of buying your mutual funds through ING, so it's a bad deal, but you're right that it's not as bad as I imagined.

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Hey Doug,

 

Try to find a company or an advisor that is not vendor specific. Most insurance company will sell you on their own products tied to say Opp. funds causing an increase in fees.

 

I'm suprised to see Merrill on your list. They usually don't get involved with small accounts unless the rep is just starting out. If that's the case, you may want to go with Asset Managed account(if it's available). You will buy loaded funds at NAV. Other than the mananaged fee from 2%(based on account value). I don't know the fee structure since I don't work for MER or any listed company you provided.

 

Another route may be to put your $$ in an IRA account or a taxable account...

Again, as I have posted few times-Not knowing the whole financial picture, no one can really give you a solid advice....Hope that helps...

 

 

 

 

 

 

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Hey Doug,

 

Try to find a company or an advisor that is not vendor specific. Most insurance company will sell you on their own products tied to say Opp. funds causing an increase in fees.

 

I'm suprised to see Merrill on your list. They usually don't get involved with small accounts unless the rep is just starting out. If that's the case, you may want to go with Asset Managed account(if it's available). You will buy loaded funds at NAV. Other than the mananaged fee from 2%(based on account value). I don't know the fee structure since I don't work for MER or any listed company you provided.

 

Another route may be to put your $$ in an IRA account or a taxable account...

Again, as I have posted few times-Not knowing the whole financial picture, no one can really give you a solid advice....Hope that helps...

 

 

Thanks -- I did post our full financial detail at diehards.org, but thought that this group might know about the quality of the specific vendors on the list. We really don't need the tax-deferred space -- something like 2/3 of our total investments are in Rollover IRAs from my previous 401(k)s -- and like I mentioned, my income disqualifies us for Roth plans, so I'm thinking that taxable investments may be the way to go for her. I may look at a few more fixed annuity plans if I can find a guaranteed rate at or above 3%, since they don't seem to charge any sales or maintenance fees, and that would be a reasonable way to fill in our bond-like asset allocation.

 

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Doug,

 

Any reason why you would be happy with 3% return expecially on a taxable account? Inflation and tax, you will be losing money. Maybe a muni may work better...Call one of the discount broker and ask what's available for your state...

 

Good luck..

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Doug,

 

Any reason why you would be happy with 3% return expecially on a taxable account? Inflation and tax, you will be losing money. Maybe a muni may work better...Call one of the discount broker and ask what's available for your state...

 

Good luck..

 

 

403(b)s aren't taxable, and can roll over to a brokerage IRA if she changes jobs. I'd take the 3% guaranteed in a tax deferred setting simply because it expands our tax-deferred capacity, which the folks over at Diehards keep reminding me is either there or it's not, and every year you don't increase it is a year with smaller retirement benefits.

 

I wouldn't accept 3% fixed return in a taxable account, though, so I'm with you there.

 

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Hey Doug,

 

Try to find a company or an advisor that is not vendor specific. Most insurance company will sell you on their own products tied to say Opp. funds causing an increase in fees.

 

I'm suprised to see Merrill on your list. They usually don't get involved with small accounts unless the rep is just starting out. If that's the case, you may want to go with Asset Managed account(if it's available). You will buy loaded funds at NAV. Other than the mananaged fee from 2%(based on account value). I don't know the fee structure since I don't work for MER or any listed company you provided.

 

Another route may be to put your $$ in an IRA account or a taxable account...

Again, as I have posted few times-Not knowing the whole financial picture, no one can really give you a solid advice....Hope that helps...

 

 

Thanks -- I did post our full financial detail at diehards.org, but thought that this group might know about the quality of the specific vendors on the list. We really don't need the tax-deferred space -- something like 2/3 of our total investments are in Rollover IRAs from my previous 401(k)s -- and like I mentioned, my income disqualifies us for Roth plans, so I'm thinking that taxable investments may be the way to go for her. I may look at a few more fixed annuity plans if I can find a guaranteed rate at or above 3%, since they don't seem to charge any sales or maintenance fees, and that would be a reasonable way to fill in our bond-like asset allocation.

 

 

If you can rollover your IRAs to a qualified plan, 403b plan or a govt 457b why not invest 5k in an after tax IRA for 2008-10 (total 15k), and then rollover the funds to a Roth IRA in 2010 where you will only be taxed on the income accumulated in the IRA. The tax will be paid 50% in 2011 and 2012. The only issue is whether you want to tie up so much of your assets in retirement benefits.

 

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