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DK

Contract Exchange

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Hi,

 

A friend of mine brought up a couple of questions for contract exchange. He wants to move his balance from two approved vendors to another approved vendor and I told him that is considered a "contract exchange" since all 3 vendors are approved by his district. He asked me about tax consequences and I told him there should not be any. He then mentioned something about the vendors needing to have information sharing agreement on file with the district, about distribution restriction needing to be the same, and balance before and after the transfer needing to be the same. Otherwise, it will be taxed as ordinary income.

 

So, if a vendor is an approved vendor for the district, doesn't that mean they have information sharing agreement on file already for them to be an approved vendor?

 

What's this thing about distribution restriction needing to be the same for both vendors?

 

As for the balance of his account being the same before and after the exchange, what happens if he already contributed to the new vendor? If he transfer his balance over, wouldn't his balance be more in the new vendor than the old vendor since he already started contribution before the exchange?

 

I'm trying to get him all into Vanguard. He first started with Nationwide. Then stopped that and was using Pension2 until recently. Now he is contributing to Vanguard. I'm trying to get him to transfer it all into Vanguard but he's afraid of it being taxed.

 

Thanks

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I've never done a transfer but my intuition matches your initial expectation. I don't see why he can't close out the two accounts and transfer over to Vanguard. Given that we're talking about tax advantaged accounts, I see no reason a tax bill would be generated.

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DK What a bureaucratic mess the 403b world is. And folks wonder why Vanguard doesn't really want to deal with it. How many hoops must a poor investor jump through to finally get things right.

 

Why would he be taxed if he does not take ownership of the money and is only interested in transferring it?

 

He should be able to transfer over without consequences to anyone on the approved vendor list if its allowed. Check the plan document. Better yet call the TPA.

 

Be advised though if he still has any money with Nationwide he would pay possibly surrendar charges for the transfer.

 

Good of you helping your friend with this. When it comes to 403B's a knowledgeable friend is invaluable.

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403b world makes no sense to me other than the small bits I've gleaned from this board. It's all very self-directed and no one seems to be interested in making sure anyone understands retirement unless you are actually almost ready to take your pension.

 

In Hawaii, K12 public schools have a pool of 30+ approved providers through our TPA, and apparently we can contribute to as many as we like up to the max annual contribution. The state university system has a different union, and although they have the same TPA, they have a different list of providers, including Vanguard.

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It's all very self-directed and no one seems to be interested in making sure anyone understands retirement

 

If you haven't figured it out yet, being transparent is not in the best interest of the financial industry which can only survive by keeping us off balanced, confused, and uneducated.

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being transparent is not in the best interest of the financial industry which can only survive by keeping us off balanced, confused, and uneducated.

 

I agree.

 

Although, Vanguard has demonstrated the industry would be just fine (perhaps less wealthy) if they behaved ethically.

 

Make no mistake, K-12 employees are being victimized every step of the way, but they have the power to end this overnight. An apathetic victim remains a victim. These financial institutions behave in their best interest, K-12 employees do not. I've seen an amazing level of inaction by people with resources/knowledge/help who are upset about the degree to which they're being exploítated.

 

OCPS (FL) retirement services told me "nobody is complaining about our vendors" and they expressed concern that changing vendors would upset currently enrolled employees because they'd have to take action on something that was already settled. Retirement services hasn't demonstrated an understanding of investing, but they seem very susceptible to pressure. I truly believe they'd respond to phones ringing off the hook with complaints.

 

So ironically it is the employees who are incentivizing the district to keep the exploítative vendors! If K-12 employees wanted this to change, it would.

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OCPS (FL) retirement services told me "nobody is complaining about our vendors" and they expressed concern that changing vendors would upset currently enrolled employees because they'd have to take action on something that was already settled.

 

 

Its true. Most want to set it and forget it forever until retirement EVEN IF THEY ARE BEING ROBBED with high fees. I've seen it myself. Complacency is an awful thing and it can cost you.

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403b world makes no sense to me other than the small bits I've gleaned from this board. It's all very self-directed and no one seems to be interested in making sure anyone understands retirement unless you are actually almost ready to take your pension.

 

In Hawaii, K12 public schools have a pool of 30+ approved providers through our TPA, and apparently we can contribute to as many as we like up to the max annual contribution. The state university system has a different union, and although they have the same TPA, they have a different list of providers, including Vanguard.

 

Higher education systems and the culture is absolutely and TOTALLY different from public k12 systems and culture. The University of California system's 403b has a Vanguard plan that we DREAM of our k12. Years ago, the junior college Los Angeles union absolutely loved me, from the president all the way down to their CalSTRS board member Carolyn Widerdner (now retired too), who attended a few of my informal informational 403b meetings held at a restaurant and asked me to present at one of their big meetings. With my union, instead, I was not welcomed by my union president (I went to meetings anyway, I was NOT intimidated by this jerk). Do you know why? Because I requested that my K12 union consider asking TIAA CREF to be union approved. That's all! The JC union were thrilled to have TIAA CREF be their 403b approved vendor. It is absolutely mind blowing how different the people and the cultures are. Higher ed, and even nurses at public hospitals have superior 403b plans than public K12 in Caifornia.

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Higher education systems and the culture is absolutely and TOTALLY different from public k12 systems and culture.

 

Have you found there is less intellectual curiosity in K-12?

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That's all! The JC union were thrilled to have TIAA CREF be their 403b approved vendor. It is absolutely mind blowing how different the people and the cultures are. Higher ed, and even nurses at public hospitals have superior 403b plans than public K12 in Caifornia.

 

I have known this all along. Why is this? Are there kickbacks to keep the status quo in 12/K? Or are 12/k perceived as pushovers ? Are we seen as less intellectual and capable than the University? There must be a reason the worst plans end up with 12-K.

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