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Starting Out In A 403(b)

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Guest Erik

Alison,

 

Even though I wrote "invest in C Shares" and Roberta wrote "don't buy C Shares!" we are actually in agreement. Here is the key to understanding share classes. The ongoing expenses of A shares are about .75% less per year than C shares. However, A shares charge 5-6% upfront on every deposit (you deposit $100, your account is credited $95) while C shares impose no such charge. So there are only 2 factors, the ongoing expenses and the up front charge. If you pay 5% upfront, but then save .75% per year, then you will come out ahead with A shares after about 7 ot 8 years. However, if you transfer in 8 years, then most of your money will be newly deposited, so the time frame you are looking at is 15 years. If you find this confusing just go with this: If you are going to keep you 403b at American Funds for less than 15 years, it will be cheaper to use C shares.

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Guest Erik

I just ran a spread sheet. If you are making salary deferral, A shares will surpass C shares after 11 years, not 15. I assumed and 8% growth rate, .75% more expenses with C shares, and a 5% load.

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Guest roberta

erik,

Don't forget the breakpoints, as alison continues to buy over the years the load decreases. Don't forget that given American funds are stable and with low E.R. she might want to continue to hold the funds she purchased even after she is no longer adding to that account, so that she might be holding those funds for 20 or 30 years.

Roberta

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Guest Erik

let's try to keep this simple: Regarding break points, the load does not decrease unless you make a $25,000 purchase with in a 13 month period. They don't look at your last 10 years of contributions. SO the simple answer is: If you are going to keep the funds for 11 years or less, by C shares. Run the calculations for yourself if you question this...

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Guest roberta

You need to review the information on breakpoints to clear up your confusion, or perhaps I'm not understanding the breakpoints my husband and I ARE receiving on our purchases,

 

Roberta

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Another reason a 403(b) is a better choice than a 457 plan is because with a 403b plan, if you do not like the performance of your investments to date with the choices offered by your employer, you can do a 90-24 transfer and move your assets to a 403b provider of your choice.

 

This transfer is not available to 457 plan participants.

 

John K.

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Actually you can transfer 457(b) assets to another provider if that provider is availble through your district. You forgot to mention that the 90-24 transfer will probably benefit the advisor selling the product more than the teacher purchasing it, unless of course it is a transfer to a low-cost, high quality product.

 

ScottyD

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