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ElaineF

New 403b Choices

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I have been happy with low cost 403b investing for several years with VANGUARD. More specifically choosing a Target Date Fund. However, with the new IRS regs. Vanguard is no longer a choice for 2009.(Sch. Dist. won't sign their form). They are only potentially offering 403b from:

AIG RETIREMENT(Valic) -co.in financial trouble??

ING

LINCOLN INVESTMENT PLANNING

METLIFE

KADES-MARGOLIS (This is the local co. endorced by the Union- PSEA w/ a very high 5.5% load on all mutual funds....with quite a few to choose from. See http://www.moneybydesign.biz/ )

I realize with a State teachers pension, I don't want a high cost annuity contract for my 403b. That's unless it was a low cost one from TIAA-CREF. But, then TIAA IS NOT OFFERED! These companies all seem to be high cost. Any Suggestions? WHAT HAS THE IRS DONE?

 

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I have been happy with low cost 403b investing for several years with VANGUARD. More specifically choosing a Target Date Fund. However, with the new IRS regs. Vanguard is no longer a choice for 2009.(Sch. Dist. won't sign their form). They are only potentially offering 403b from:

AIG RETIREMENT(Valic) -co.in financial trouble??

ING

LINCOLN INVESTMENT PLANNING

METLIFE

KADES-MARGOLIS (This is the local co. endorced by the Union- PSEA w/ a very high 5.5% load on all mutual funds....with quite a few to choose from. See http://www.moneybydesign.biz/ )

I realize with a State teachers pension, I don't want a high cost annuity contract for my 403b. That's unless it was a low cost one from TIAA-CREF. But, then TIAA IS NOT OFFERED! These companies all seem to be high cost. Any Suggestions? WHAT HAS THE IRS DONE?

 

The IRS has screwed the vast majority of teachers in the United States, especially those who previously had access to a low cost quality vendor such as Vanguard. You like many other teachers, including my spouse, have loaded, high cost vendors to choose from. The piss poor selection you have been given leaves you no choice but to walk away from your 403(b) program, period! Don't walk, run from these poor choices. Instead of lining the pockets of the sales people within these vendors, do yourself a favor and fund your ROTH IRA with Vanguard. If after doing so, you have more money to invest, invest your taxable money within Vanguards Index Funds. The target retirement fund is a good choice. These funds are put together with Index funds which are ideal choices for taxable accounts since they pay low distributions which means less of a tax liability for you at years end.

 

Unfortunately you will be losing a valuable tax savings program. Every dollar you were putting in your 403b was on a pretax basis and that's something an IRA can't offer BUT an IRA is still a better choice than the vendors you have to pick from even with the tax break! Once expenses go north of 1.5% the tax savings is lost and it makes no sense unless your employer is giving you a match which I am assuming they are not.

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Put your 403b money in a money market with AIG, if one is available with them until the smoke clears - both with this 403b mess, and the bear market. In the meantime do some real self - education about mutual fund investments. Morningstar is a good web resource. Hit the local bookstore and just soak up info. Your district will likely eventually add more 403b companies. You may eventually find something you like better than Vanguard even - let's hope!

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Hi,

If you do not have any good choices in your 403b, and it doesn't appear you do, you can go with a Roth IRA, I Bonds, and tax-efficient mutual funds. Put your tax-inefficient funds in your Roth and 403b. Here is a list of books that you might consider: http://www.bogleheads.org/readbooks.htm The Boglehead Guide to Investing would be a good place to start if you are a beginning investor. Best Wishes.

 

Joe

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In theory Roth IRA is an excellent back-up.

 

Two problems with it though:

 

I find myself contributing more often to my 403b because the money comes out Pre-tax, and before I even see it. You contribute the Roth IRA after tax, and I find it harder to consistently discipline myself - I often over-run my budget knowing i can go online and cancel my Roth anytime.

 

I have yet to max out my Roth. However I have made maximum contributions to my 403b, despite that the annual contribution limit to the 403b is 3x's that of the Roth IRA

 

Second, there is currently a 5,000 annual limit to the Roth IRA. That's fine if you're young. If you're in your 40's or 50's, it's not enough.

 

 

 

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Hi,

Here is link that considers this issue: http://thefinancebuff.com/2008/07/alternat...-403b-plan.html Best Wishes.

 

Joe

 

Why is this link an accurate respresentation of the difference between taxable and roth contributions?

If the tax rate at retirement is the same as it is in the year of contribution, the tax paid will be the same if the time value of he the amount paid as taxes on the Roth contribution is taken into account.

 

Calculations demonstrating the benefits of a Roth IRA igore the fact that the taxpayer gives up future investment earning on the amount paid as taxes in the year of contribution which must be subtracted from the future earnings of the Roth IRA.

 

Joe:

 

Please provide a demonstation of how a Roth IRA will yield a better tax benefit for a taxpayer than a deductible IRA if the tax rate is same in retirement as of the year of the contribution.

 

If the taxpayer will be a lower tax bracket in retirement what advantage is there to making a Roth contribution.

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Thank-you for your replies. I've been investigating the choices. In addition to their high loaded fund, LINCOLN now also offers some VANGUARD FUNDS. With that choice instead of a front load you pay fees based on 9/10 of 1%(###### .009) of the annual value(paid quarterly). In doing the math I think that would only be better than paying high loads if close to retirement, which I am(5-6 years). The Lincoln rep. said I could then roll it into an IRA directly with Vanguard.

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I have been happy with low cost 403b investing for several years with VANGUARD. More specifically choosing a Target Date Fund. However, with the new IRS regs. Vanguard is no longer a choice for 2009.(Sch. Dist. won't sign their form). They are only potentially offering 403b from:

AIG RETIREMENT(Valic) -co.in financial trouble??

ING

LINCOLN INVESTMENT PLANNING

METLIFE

KADES-MARGOLIS (This is the local co. endorced by the Union- PSEA w/ a very high 5.5% load on all mutual funds....with quite a few to choose from. See http://www.moneybydesign.biz/ )

I realize with a State teachers pension, I don't want a high cost annuity contract for my 403b. That's unless it was a low cost one from TIAA-CREF. But, then TIAA IS NOT OFFERED! These companies all seem to be high cost. Any Suggestions? WHAT HAS THE IRS DONE?

 

I am in the same boat with my school district in Texas. I looked on the list of approved vendors and found that one of them is a company called 403basp. It looks like a fund market and offers access to mutual fund companies like Vanguard, Fidelity and T. Rowe Price. They list a $40 per year fee for participants, but that beats the heck out of any annuity, and could be an option for some people. Has anyone out there dealt with 403basp?

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Baron --

The 403bASP folks are highly thought of by some of the best thinkers in the 401k and 403b world, including Matthew Hutcheson. I would not hesitate to work with them myself and would be THRILLED to have a plan by them offered to my colleagues.

 

JudyS

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