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Vanguard 403(B)(7)

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My spouse use to contribute directly with Vanguard when they were a vendor in her old 403(b)(7). After losing Vanguard as a vendor, we decided to just leave the money with Vanguard.

 

Her new 403(b) is with Aspire Financial and although they are low cost, we rather just leave the old 403(b) with Vanguard and not transfer it to Aspire. However, while doing some estate planning I think I stumbled upon a potential problem I was unaware of.

 

I am going to call Vanguard first thing Monday morning but wanted to see if anybody here could validate my concerns.

 

By leaving the account as is titled "Jane Smith-403(b)(7)", does the primary beneficiary lose the ability to do a "stretch ira" since this account has not been rolled over into an Ira? It just dawned on me that this oversight could lead to just one option, a costly lump sum distribution, left as is. In addition to the loss of the tax shelter.

 

Am I correct? By not having rolled this old 403(b)(7)over into an IRA does a beneficiary lose the "stretch Ira" option and have a lump sum distribution as the only option?

 

At the time, Vanguard never raised this concern and I never thought about it till I was doing some research on the best and most tax efficient ways to inherit an IRA. Thanks for any input.

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My spouse use to contribute directly with Vanguard when they were a vendor in her old 403(b)(7). After losing Vanguard as a vendor, we decided to just leave the money with Vanguard.

 

Her new 403(b) is with Aspire Financial and although they are low cost, we rather just leave the old 403(b) with Vanguard and not transfer it to Aspire. However, while doing some estate planning I think I stumbled upon a potential problem I was unaware of.

 

I am going to call Vanguard first thing Monday morning but wanted to see if anybody here could validate my concerns.

 

By leaving the account as is titled "Jane Smith-403(b)(7)", does the primary beneficiary lose the ability to do a "stretch ira" since this account has not been rolled over into an Ira? It just dawned on me that this oversight could lead to just one option, a costly lump sum distribution, left as is. In addition to the loss of the tax shelter.

 

Am I correct? By not having rolled this old 403(b)(7)over into an IRA does a beneficiary lose the "stretch Ira" option and have a lump sum distribution as the only option?

 

At the time, Vanguard never raised this concern and I never thought about it till I was doing some research on the best and most tax efficient ways to inherit an IRA. Thanks for any input.

 

 

I don't have an answer, just a few thoughts:

There is information about inheriting a 403b and tax consequences all over the web. I would be careful about transferring from a low cost company to a higher cost company that will address a potential tax problem. There are many variables, how much are we talking about and what would be the tax if it were fully distributed? Most important, would the tax savings be higher than the costs when you transfer to a higher cost company? Those fees add up over the years, even if its "just a little bit higher."” I would be interested in what you find out.

 

Steve

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I can't answer your question and no one seems to be participating much on this board lately so I will wish you a good Sunday morning and expand on you post. Its a good question.

 

Funny, I too lost Vanguard direct and now have an appointment with the Aspire rep that was also added recently in my school system. I want to add Total Bond Index by Vanguard. It will now cost me .92 expense ratio for institutional shares. Thats highway robbery as the Vanguard fund charges only charges 0.07 Who is getting the .85? and what are they doing to earn it? Its highway robbery. Its free money for getting my signature.

 

 

I hope someone answers your question but beware, I'm sure my new aspire rep will want me too to transfer all my assetts over to him too. Did your Advisor initiate

this concern? Or as you say did you do your own research?

 

Tony

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My spouse use to contribute directly with Vanguard when they were a vendor in her old 403(b)(7). After losing Vanguard as a vendor, we decided to just leave the money with Vanguard.

 

Her new 403(b) is with Aspire Financial and although they are low cost, we rather just leave the old 403(b) with Vanguard and not transfer it to Aspire. However, while doing some estate planning I think I stumbled upon a potential problem I was unaware of.

 

I am going to call Vanguard first thing Monday morning but wanted to see if anybody here could validate my concerns.

 

By leaving the account as is titled "Jane Smith-403(b)(7)", does the primary beneficiary lose the ability to do a "stretch ira" since this account has not been rolled over into an Ira? It just dawned on me that this oversight could lead to just one option, a costly lump sum distribution, left as is. In addition to the loss of the tax shelter.

 

Am I correct? By not having rolled this old 403(b)(7)over into an IRA does a beneficiary lose the "stretch Ira" option and have a lump sum distribution as the only option?

 

At the time, Vanguard never raised this concern and I never thought about it till I was doing some research on the best and most tax efficient ways to inherit an IRA. Thanks for any input.

 

 

I don't have an answer, just a few thoughts:

There is information about inheriting a 403b and tax consequences all over the web. I would be careful about transferring from a low cost company to a higher cost company that will address a potential tax problem. There are many variables, how much are we talking about and what would be the tax if it were fully distributed? Most important, would the tax savings be higher than the costs when you transfer to a higher cost company? Those fees add up over the years, even if its "just a little bit higher."” I would be interested in what you find out.

 

Steve

 

 

Hi Steve,

 

I am NOT going to transfer this account to her current vendor 403(b)Aspire Financial. The money is sitting in a 403b7 account at Vanguard and will remain there. It wouldn't make sense for us to transfer this money to Aspire since the costs of keeping it at Vanguard outweigh the slightly higher fees at Aspire.

 

Our only concern is how the money is currently being titled. I beleive we should transfer this money out of her 403b7 and into a Rollover Ira (still at Vanguard) so that in the event something happened to the account holder, a beneficiary would have options, like doing a "stretch Ira".

 

If the money is just left in the 403b7 acccount, I beleive this option would not exist and the primary benficiary, me, would have to take a lump sum distribution which I would like to avoid. Were talking about 150K. I will call Vanguard monday morning and I will report back with what they say for others that may be in the same boat.

 

This comes down to possibly retitling the account so a beneficiary does not have to take a lump sum and can stretch out the distributions over their life expectancy and keep the tax shelter in place for the rest of the money so it can continue to compound tax free.

 

At the time we never botherd to convert it to a Rollover IRA because I believe we wanted to avoid a yearly IRA fee which is no longer an issue due to our portfolio size. What's the saying, penny wise, pound foolish?

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My spouse use to contribute directly with Vanguard when they were a vendor in her old 403(b)(7). After losing Vanguard as a vendor, we decided to just leave the money with Vanguard.

 

Her new 403(b) is with Aspire Financial and although they are low cost, we rather just leave the old 403(b) with Vanguard and not transfer it to Aspire. However, while doing some estate planning I think I stumbled upon a potential problem I was unaware of.

 

I am going to call Vanguard first thing Monday morning but wanted to see if anybody here could validate my concerns.

 

By leaving the account as is titled "Jane Smith-403(b)(7)", does the primary beneficiary lose the ability to do a "stretch ira" since this account has not been rolled over into an Ira? It just dawned on me that this oversight could lead to just one option, a costly lump sum distribution, left as is. In addition to the loss of the tax shelter.

 

Am I correct? By not having rolled this old 403(b)(7)over into an IRA does a beneficiary lose the "stretch Ira" option and have a lump sum distribution as the only option?

 

At the time, Vanguard never raised this concern and I never thought about it till I was doing some research on the best and most tax efficient ways to inherit an IRA. Thanks for any input.

 

 

I don't have an answer, just a few thoughts:

There is information about inheriting a 403b and tax consequences all over the web. I would be careful about transferring from a low cost company to a higher cost company that will address a potential tax problem. There are many variables, how much are we talking about and what would be the tax if it were fully distributed? Most important, would the tax savings be higher than the costs when you transfer to a higher cost company? Those fees add up over the years, even if its "just a little bit higher."” I would be interested in what you find out.

 

Steve

 

 

Hi Steve,

 

I am NOT going to transfer this account to her current vendor 403(b)Aspire Financial. The money is sitting in a 403b7 account at Vanguard and will remain there. It wouldn't make sense for us to transfer this money to Aspire since the costs of keeping it at Vanguard outweigh the slightly higher fees at Aspire.

 

Our only concern is how the money is currently being titled. I beleive we should transfer this money out of her 403b7 and into a Rollover Ira (still at Vanguard) so that in the event something happened to the account holder, a beneficiary would have options, like doing a "stretch Ira".

 

If the money is just left in the 403b7 acccount, I beleive this option would not exist and the primary benficiary, me, would have to take a lump sum distribution which I would like to avoid. Were talking about 150K. I will call Vanguard monday morning and I will report back with what they say for others that may be in the same boat.

 

This comes down to possibly retitling the account so a beneficiary does not have to take a lump sum and can stretch out the distributions over their life expectancy and keep the tax shelter in place for the rest of the money so it can continue to compound tax free.

 

At the time we never botherd to convert it to a Rollover IRA because I believe we wanted to avoid a yearly IRA fee which is no longer an issue due to our portfolio size. What's the saying, penny wise, pound foolish?

 

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Hello. I too gave Vanguard and decided to leave it in the perhaps foolish hope that sometime in the future VG would come back on my list. I am not optimistic. I have never worried about leaving it there. My plan was to leave it if it does not return, and convert to an Ira once I retire, in a few more years.

 

Other informed opinions would be helpful.

 

Edy

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I can't answer your question and no one seems to be participating much on this board lately so I will wish you a good Sunday morning and expand on you post. Its a good question.

 

Funny, I too lost Vanguard direct and now have an appointment with the Aspire rep that was also added recently in my school system. I want to add Total Bond Index by Vanguard. It will now cost me .92 expense ratio for institutional shares. Thats highway robbery as the Vanguard fund charges only charges 0.07 Who is getting the .85? and what are they doing to earn it? Its highway robbery. Its free money for getting my signature.

 

 

I hope someone answers your question but beware, I'm sure my new aspire rep will want me too to transfer all my assetts over to him too. Did your Advisor initiate

this concern? Or as you say did you do your own research?

 

Tony

 

 

Hi Tony,

 

No, I stumbled upon this myself. I am trying to put together a Financial sheet so that my spouse knows what we have, what options she has if she inherits the various accounts and what to do in case I'm not around. As I was doing this, I read an article about a common mistake that people make when they leave an employer they do not transfer their 401(k) into an Ira, they just let it sit with their previous employer.

 

The author went on to say that because the old 401(k)was transferred into a Rollover IRA, the beneficiary can not stretch out the distributions and will be forced to take a lump sum.

 

By the way Tony, I read your post and you raised some concerns that I want you to be aware of. Like I said in a previous post, Aspire is actually a low cost in comparison to what else in being offered, consider yourself fortunate if Aspire, formerly called 403bFundsource is offered as a vendor. However, if you plan on using a rep you are correct, it's not a great deal at all, they will only add an additional layer of costs.

 

I wrote about this in great detail in a previous post and it sounds like you may be going down this road which I believe you can avoid and should avoid. With Aspire you the option to do a SELF DIRECT account, you DO NOT need a representative!

 

At my wife's school district, Aspire Financial is listed as a vendor and next to them they have several brokers from Edward Joned listed as the reps for Aspire. I learned and discovered by accident after speaking directly with Aspire, that you DO NOT need a broker! All I did on my wife's application where it asked for the broker's name is put "self direct account" and "n/a" where additional broker information was requested.

 

When I called her school district and advised them that I was not using a broker ( so they didn't kick back the application since no broker/dealer information was provided) they even said, "no problem, just make sure you indicate self directed account"...

 

So we are being charged a 40.00 per year account fee plus 15 basis points of the account value. We invest index funds which adds another 10 basis points in fees (using Fidelity Spartan). Again, compared to the other loaded funds and annuity offered we feel blessed that although it's not dirt cheap, it's still wayyyyyy better than the other options.

 

Now I understand why your reporting 90 basis points on a bond index, because your going through a rep. like I thought I had to. Do a self direct account, Aspire offers Vanguard Index funds. You don't need a broker. I wish the school districts would disclose this to it's employees instead of making everyone believe they have to use one.

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My spouse use to contribute directly with Vanguard when they were a vendor in her old 403(b)(7). After losing Vanguard as a vendor, we decided to just leave the money with Vanguard.

 

Her new 403(b) is with Aspire Financial and although they are low cost, we rather just leave the old 403(b) with Vanguard and not transfer it to Aspire. However, while doing some estate planning I think I stumbled upon a potential problem I was unaware of.

 

I am going to call Vanguard first thing Monday morning but wanted to see if anybody here could validate my concerns.

 

By leaving the account as is titled "Jane Smith-403(b)(7)", does the primary beneficiary lose the ability to do a "stretch ira" since this account has not been rolled over into an Ira? It just dawned on me that this oversight could lead to just one option, a costly lump sum distribution, left as is. In addition to the loss of the tax shelter.

 

Am I correct? By not having rolled this old 403(b)(7)over into an IRA does a beneficiary lose the "stretch Ira" option and have a lump sum distribution as the only option?

 

At the time, Vanguard never raised this concern and I never thought about it till I was doing some research on the best and most tax efficient ways to inherit an IRA. Thanks for any input.

 

 

Whether you can "stretch" is dependent upon Vanguard's Custodial Agreement. If they allow your beneficiary to name a beneficiary, you should be fine. Having said that, if your wife has the ability to roll to an IRA I don't see why you wouldn't do it, I believe the Vanguard IRA is cheaper than the Vanguard 403(b)7 (as the $15 per fund fee no longer applies). As for paying in excess of 90 bps at Aspire for a bond fund....like someone said earlier, you need to cut out the middle man.

 

ScottyD

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I can't answer your question and no one seems to be participating much on this board lately so I will wish you a good Sunday morning and expand on you post. Its a good question.

 

Funny, I too lost Vanguard direct and now have an appointment with the Aspire rep that was also added recently in my school system. I want to add Total Bond Index by Vanguard. It will now cost me .92 expense ratio for institutional shares. Thats highway robbery as the Vanguard fund charges only charges 0.07 Who is getting the .85? and what are they doing to earn it? Its highway robbery. Its free money for getting my signature.

 

 

I hope someone answers your question but beware, I'm sure my new aspire rep will want me too to transfer all my assetts over to him too. Did your Advisor initiate

this concern? Or as you say did you do your own research?

 

Tony

 

 

Hi Tony,

 

No, I stumbled upon this myself. I am trying to put together a Financial sheet so that my spouse knows what we have, what options she has if she inherits the various accounts and what to do in case I'm not around. As I was doing this, I read an article about a common mistake that people make when they leave an employer they do not transfer their 401(k) into an Ira, they just let it sit with their previous employer.

 

The author went on to say that because the old 401(k)was transferred into a Rollover IRA, the beneficiary can not stretch out the distributions and will be forced to take a lump sum.

 

By the way Tony, I read your post and you raised some concerns that I want you to be aware of. Like I said in a previous post, Aspire is actually a low cost in comparison to what else in being offered, consider yourself fortunate if Aspire, formerly called 403bFundsource is offered as a vendor. However, if you plan on using a rep you are correct, it's not a great deal at all, they will only add an additional layer of costs.

 

I wrote about this in great detail in a previous post and it sounds like you may be going down this road which I believe you can avoid and should avoid. With Aspire you the option to do a SELF DIRECT account, you DO NOT need a representative!

 

At my wife's school district, Aspire Financial is listed as a vendor and next to them they have several brokers from Edward Joned listed as the reps for Aspire. I learned and discovered by accident after speaking directly with Aspire, that you DO NOT need a broker! All I did on my wife's application where it asked for the broker's name is put "self direct account" and "n/a" where additional broker information was requested.

 

When I called her school district and advised them that I was not using a broker ( so they didn't kick back the application since no broker/dealer information was provided) they even said, "no problem, just make sure you indicate self directed account"...

 

So we are being charged a 40.00 per year account fee plus 15 basis points of the account value. We invest index funds which adds another 10 basis points in fees (using Fidelity Spartan). Again, compared to the other loaded funds and annuity offered we feel blessed that although it's not dirt cheap, it's still wayyyyyy better than the other options.

 

Now I understand why your reporting 90 basis points on a bond index, because your going through a rep. like I thought I had to. Do a self direct account, Aspire offers Vanguard Index funds. You don't need a broker. I wish the school districts would disclose this to it's employees instead of making everyone believe they have to use one.

 

 

 

 

Thanks for the heads up. I was thinking of breaking my appointment and this information may seal the deal. I did notice thats its no longer (Suddenly) called ASPire as it was last time I looked on our school benefits page. Its now called Everence but I spoke to the rep just this past friday and he said he was associated with ASPire so I'm not sure what to make of this.

 

Question. Do I call him and say "I want a self directed account and I don't want to work with you" or do I talk to my personnel director? As usual, when it comes to 403B's I am still

a novice and just as susceptible to making the same mistakes I made years ago. Why is this always so complicated??

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I can't answer your question and no one seems to be participating much on this board lately so I will wish you a good Sunday morning and expand on you post. Its a good question.

 

Funny, I too lost Vanguard direct and now have an appointment with the Aspire rep that was also added recently in my school system. I want to add Total Bond Index by Vanguard. It will now cost me .92 expense ratio for institutional shares. Thats highway robbery as the Vanguard fund charges only charges 0.07 Who is getting the .85? and what are they doing to earn it? Its highway robbery. Its free money for getting my signature.

 

 

I hope someone answers your question but beware, I'm sure my new aspire rep will want me too to transfer all my assetts over to him too. Did your Advisor initiate

this concern? Or as you say did you do your own research?

 

Tony

 

 

Hi Tony,

 

No, I stumbled upon this myself. I am trying to put together a Financial sheet so that my spouse knows what we have, what options she has if she inherits the various accounts and what to do in case I'm not around. As I was doing this, I read an article about a common mistake that people make when they leave an employer they do not transfer their 401(k) into an Ira, they just let it sit with their previous employer.

 

The author went on to say that because the old 401(k)was transferred into a Rollover IRA, the beneficiary can not stretch out the distributions and will be forced to take a lump sum.

 

By the way Tony, I read your post and you raised some concerns that I want you to be aware of. Like I said in a previous post, Aspire is actually a low cost in comparison to what else in being offered, consider yourself fortunate if Aspire, formerly called 403bFundsource is offered as a vendor. However, if you plan on using a rep you are correct, it's not a great deal at all, they will only add an additional layer of costs.

 

I wrote about this in great detail in a previous post and it sounds like you may be going down this road which I believe you can avoid and should avoid. With Aspire you the option to do a SELF DIRECT account, you DO NOT need a representative!

 

At my wife's school district, Aspire Financial is listed as a vendor and next to them they have several brokers from Edward Joned listed as the reps for Aspire. I learned and discovered by accident after speaking directly with Aspire, that you DO NOT need a broker! All I did on my wife's application where it asked for the broker's name is put "self direct account" and "n/a" where additional broker information was requested.

 

When I called her school district and advised them that I was not using a broker ( so they didn't kick back the application since no broker/dealer information was provided) they even said, "no problem, just make sure you indicate self directed account"...

 

So we are being charged a 40.00 per year account fee plus 15 basis points of the account value. We invest index funds which adds another 10 basis points in fees (using Fidelity Spartan). Again, compared to the other loaded funds and annuity offered we feel blessed that although it's not dirt cheap, it's still wayyyyyy better than the other options.

 

Now I understand why your reporting 90 basis points on a bond index, because your going through a rep. like I thought I had to. Do a self direct account, Aspire offers Vanguard Index funds. You don't need a broker. I wish the school districts would disclose this to it's employees instead of making everyone believe they have to use one.

 

 

 

 

Thanks for the heads up. I was thinking of breaking my appointment and this information may seal the deal. I did notice thats its no longer (Suddenly) called ASPire as it was last time I looked on our school benefits page. Its now called Everence but I spoke to the rep just this past friday and he said he was associated with ASPire so I'm not sure what to make of this.

 

Question. Do I call him and say "I want a self directed account and I don't want to work with you" or do I talk to my personnel director? As usual, when it comes to 403B's I am still

a novice and just as susceptible to making the same mistakes I made years ago. Why is this always so complicated??

 

 

 

Hi Tony,

 

Yes, cancel your appointment with this rep. but no need to tell him you want to do a self direct account, it's none of his/her business. Make up an excuse.

 

Here are the steps we had to take to sign up with Aspire at my wife's school district.

1. Go to their web site http://www.403bplan.info/index.php and click on plan search.

2. Select your state, click on NEXT, then select your school district, click on NEXT

3.Click on Plan Detail, left hand side

4.Download the enrollment form and where it asks for any Broker information, write SELF DIRECT ACCOUNT

5.Near the end you will find the Account Investment Election Form, this is where you will write which specific mutual funds you want your money invested in.

 

Mail or Fax the form to Aspire, once they establish your account, then complete a salary reduction agreement and give it to your payroll/403(b) office. If your SRA requests Broker information, write "self direct" account.

 

That's all we did and I believe that's all you need to do. In the event your HR people tell you, you must use a broker dealer, I would resist. They may only be saying that because the form asks for one. I was initially told that my wife needed one but they quickly relented and told me to write "self direct". I know for a fact Aspire allows this because they are the ones that brought it to my attention! So I wouldn't even ask your district, just indicate "self direct" and enjoy the next best option to having Vanguard. 40.00 annual fee, 15 basis of the account value and whatever your mutual funds charge. Since you probably use index funds this will add a few more basis points. Better than the loaded funds and annuities the others are offering, and I mean ALL of the other vendors. ASpire is the only vendor where I can self direct and buy index funds. They offer thousands of funds and charge only the fees I mentioned. I have seen these fees on our account statement and they are legit. Good luck

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This is great information but I have to wonder if they closed the loophole when they changed their name. I am exploring.

 

Thanks

 

Tony,

Just out of curiosity, if you followed those steps, is your school district even listed in Aspire's database? If it is, I would think that is a good sign...

 

By the way, I called Vanguard and they advised me that even though the account is still titled as a 403b7, the beneficiary can treat it as an ASSUMED or INHERITED IRA, each one carries it own distinct advantageous and disadvantegeous, thanks to all that responded...

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Its listed!!!! I am so excited. You may have opened a door for me back into a 403b. I just ran off the form

 

Thank-You

 

Tony

 

 

I will get back to you

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Just got off the phone with Aspire Headquarters. WE DO NOT need to go through their

broker/ representatives to access their accounts. The only restriction is loaded funds.I'm not much upset about that.

 

All Vanguard funds are open as are any fund that does not charge an upfront fee. I just

downloaded the application online and will fill it out tonight. Where it says

representative broker just write in SELF DIRECTED.I will save the huge broker tack on

this way and lower my cost to less than half.

 

 

Awesome!!!!

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