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Should I pay surrender fees?

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New to the forum and love seeing the support for educators in getting in better accounts!  I am learning a lot!

My situation and question is this:  I've got a 403b account with Voya Advantage Century (Reliastar) with an average expense ratio of .73% and annual costs of $243.  403b compare says that the expense ratio is "low" but I'm looking at Vanguard and the expense ratio is .15%.  Furthermore, the Vanguard account has an annual cost of $75.  In addition, Vanguard's investment fees are only $15 per $10k invested whereas Voya's investment fees are $73 per 10K invested. 

I have about $80K invested and about a 10 year time horizon before I'll be drawing from the account. 

My plan is to do a contract exchange from Voya to Vanguard but there is a $1615 surrender fee I stand to lose.  Is this worth is?  I want to make sure I'm doing the right thing. 

Thanks for any input!

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I'm not sure if you're getting all of those numbers from 403bcompare, but I believe at least some of them are incorrect or unclear:

  • The expense ratio for Vanguard depends on what funds you buy and you can certainly build a fully diversified portfolio for less than 0.15%.
  • Vanguard's annual fee is $60, not $75.
  • I'm not sure what the $243 figure you quoted is, perhaps an annual fixed fee for Voya?

To simplify your question you appear to be asking, "is it worth paying a 2% fee now in order to save at least 0.58% every year?" That's a simple math equation that yields that following data.

The first column is staying put. The second column is moving to vanguard (using the 0.15% rate, which is higher than it has to be). Each row represents the value in the account after each passing year (assuming 7% market growth - expense ratios). This doesn't account for whatever the fixed costs of the accounts are (like $60 at Vanguard). So you can see at the end of the 4th year you've made up the 2% initial loss and from then on you're making more money.

$85,016.00 $83,770.40
$90,346.50 $89,508.67
$96,011.23 $95,640.02
$102,031.13 $102,191.36
$108,428.49 $109,191.47
$115,226.95 $116,671.08
$122,451.68 $124,663.05
$130,129.40 $133,202.47
$138,288.51 $142,326.84
$146,959.20 $152,076.23
$156,173.55 $162,493.45
$165,965.63 $173,624.25
$176,371.67 $185,517.51
$187,430.18 $198,225.46


So the question becomes, do you think you'll be at this district job for more than 4 years? If so then paying the 2% fee and moving to Vanguard is in your best interest.

It is worth noting, I don't know exactly how surrender fees are reduced, but I know they get reduced over time. Maybe it applies to each contribution, maybe it applies to the entire account, I don't know. However, if you're right on the precipice of a reduction, it could be worth waiting a small bit of time.

...also fact check those calculations, I did them really quick and could have made a mistake.

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Hello, Christine.  A couple of initial thoughts. 

1. You say you are 10 years from taking distributions from these funds.  If you are approaching age 59 1/2, you will have the ability to roll these funds out of your 403b plan and into a low-cost traditional IRA account (at Vanguard or wherever you choose) at that age (without a penalty, though I don't know how that would affect the surrender fee).  IRAs have fewer fees and more flexibility than almost any 403b plan.  

2. As Ed points out above, your description of the Vanguard plan makes it sound as if it is actually run by somebody else.   Vanguard charges $60/year in a 403(b), regardless of how much is invested.  There are no "per $10,000 invested" fees.  So the point here is to get clear on what your options are before initiating any change: do you have a list of 403b options from your employer (probably available from payroll, HR or benefits, quite possibly it is posted online)?.  It is possible you are looking at some third party who makes Vanguard funds available but adds their own mark up.

3. I can understand the impulse just to jettison the high cost Voya plan, put it behind you and accept the surrender fee.  But if you want to do what is in your absolute best interest, I think it would be worth the time to understand the surrender fee, including how and when it is reduced over time, before taking that plunge.  (Ed, once again, correctly points out the chance that you might see a reduction in that fee by waiting a bit.)

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