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Educator4_Arts

403b and 457 upon retiring

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Hi Educator4_Arts. To give you accurate advice, we'll need to know more about the where (which providers) and the what (specific investments) of your current retirement accounts.  If you are invested in insurance products (such as annuity plans), it will add complications because those often have substantial fees (including the notorious "surrender" fees) that you'll need to consider before moving anything.  On the other hand, if you are in an especially low-cost retirement plan (a handful of state governments offer these), it might be best to stay where you are.  

In most cases the best course is to rollover the funds into a traditional IRA account at a low-cost provider. (Vanguard is the favorite around here, though a few others, including Fidelity and Charles Schwab, could also work.) Such a move usually lowers costs, simplifies your finances and offers greater flexibility in investment choices (the latter is a mixed blessing).  If you are age 59 1/2 or older, you can roll your 403b and 457b into an IRA anytime without cost--you don't need to wait until retirement.  (I'm assuming that your 403b and 457b accounts are tax-deferred, not Roth accounts.  If any are Roth, you would roll those into a Roth IRA, not a traditional IRA.)  But, as I said above, your specific situation may be different from "most cases," so please fill us in before committing to any changes...

 

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3 hours ago, whyme said:

In most cases the best course is to rollover the funds into a traditional IRA account at a low-cost provider.

That's what I did for the sake of consolidation of my accounts. I would do a complete rollover into an  Vanguard IRA especially if as mentioned you are trying to get out of a subpar 403b/457b plan.

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Same as what whyme and Tony said. It makes no sense to leave your money in your employer's sponsored plan and pay the extra costs of administration. Roll them over to Vanguard or fidelity as soon as you retire. With the 457b plan, you have to be separated from service in order to do a rollover. 403b plan you have to be 59.5. 

hope this all helps, 

Steve

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59 minutes ago, sschullo said:

With the 457b plan, you have to be separated from service in order to do a rollover. 403b plan you have to be 59.5. 

Happy new year, Steve.  FYI, the 457b law changed about one year ago. Something called the "Pension and Health Relief to Miners Act" passed at the same time as the "Secure Act," and it changed the rules for governmental 457b accounts; the old higher age limit or separation from service requirements were removed, so 457b money can be rolled to an IRA anytime after 59 1/2, same as with a 403b.  I completed such a rollover (while still employed and contributing) in early 2020.

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10 hours ago, Why Me said:

Happy new year, Steve.  FYI, the 457b law changed about one year ago. Something called the "Pension and Health Relief to Miners Act" passed at the same time as the "Secure Act," and it changed the rules for governmental 457b accounts; the old higher age limit or separation from service requirements were removed, so 457b money can be rolled to an IRA anytime after 59 1/2, same as with a 403b.  I completed such a rollover (while still employed and contributing) in early 2020.

Hi whyme,

I figure you were on to something that I either forgot or never read. Hey that's great for our colleagues going forward, and it simplifies the mind numbing regulations. That's why I rely on people like you to keep track of the old and new regs. I read the regulations and try to remember, but I don't, there are sooooooooooo many. Scotty D. and Micheal D. are too long standing posters who know all, and I mean, ALL the regs.

All I know is my portfolio expenses are still .07% and my 2020 return was a mindblowing 9.34% for my boring conservative portfolio! Nothing boring about 9.34%. I will put up those numbers in about a week or so. 

And happy new year to you. 

Stay healthy and safe. We are not over this thing yet. 

Steve

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That 457b rule change did not get much publicity.  To make matters worse, if you search for info online, most pages still have the old information.  I don't remember how I heard about it (I'm no tax expert), but I confirmed the change with the representative of of the thrift and loan which is also the third-party administrator of 403b/457b in my district; he was on top of the new rules.  So I'm pretty sure that the change is for real, and it makes 457s a bit more attractive than they used to be.

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Hi everyone,

Thanks for your responses. I have quite a bit of money in a 403b with Equitable. All of the money is currently in a guaranteed interest account (earning 3%) since I'm planning on retiring soon and I don't want to pay the fees for the other products that are offered. I do not pay any fees with this account since it's all in the guaranteed interest and Equitable swears that I'm not paying the 1% mortality fee. I'm still contributing to it, but as I mentioned, I'm planning on retiring in June. I will be 59 and 1/2 in the spring of this year, but I will not need the money from this account (I hope) for a long time. I will not have any surrender fees since I've had this for a long time, and the surrender dates don't restart as you add money.

I also have a decent amount in a 457b (7) account with Lincoln Investment (self directed = no management fees).  I have 1/2 of the money in a Vanguard Target date retirement fund (yes, I know that's not how it's supposed to work....ugh) and the other half in money market doing nothing....except making me feel safe (and perhaps foolish too).

Ok, so what should I do? 

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I think you've done a great job getting ready for retirement! I think you should decide on an asset allocation that you can stick with, even with a market crash. We're long retired and at retirement went to 50/50 for about a decade, and since then have been 40/60. If the stock market looses 50% of its value like in 2008-09, our stock funds will be down "only" 20% of our investments, hopefully only temporarily. While interest rates are so low, you might hang on to the fixed annuity paying 4% for a while. That could be a big part of your fixed income asset class. There's always the greed/fear balance that we each have to figure out. I don't see any basic problem with what you have it in now, and you could move the 457b to an IRA when you are 59.5 and invest it at your desired asset allocation. 

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19 hours ago, Educator4_Arts said:

Hi everyone,

Thanks for your responses. I have quite a bit of money in a 403b with Equitable. All of the money is currently in a guaranteed interest account (earning 3%) since I'm planning on retiring soon and I don't want to pay the fees for the other products that are offered. I do not pay any fees with this account since it's all in the guaranteed interest and Equitable swears that I'm not paying the 1% mortality fee. I'm still contributing to it, but as I mentioned, I'm planning on retiring in June. I will be 59 and 1/2 in the spring of this year, but I will not need the money from this account (I hope) for a long time. I will not have any surrender fees since I've had this for a long time, and the surrender dates don't restart as you add money.

I also have a decent amount in a 457b (7) account with Lincoln Investment (self directed = no management fees).  I have 1/2 of the money in a Vanguard Target date retirement fund (yes, I know that's not how it's supposed to work....ugh) and the other half in money market doing nothing....except making me feel safe (and perhaps foolish too).

Ok, so what should I do? 

I don't understand your question. While I would never again put my money in any insurance company (except TIAA), I agree with krow36.

But when an insurance company rep "swears" anything, my red flag goes up big time. They can say anything! He/she does not want you to leave! It is an old emotional game played with educators' minds for decades.  Since we are kind folks we tend to believe what is said to us. It is what's written in the contract you signed that counts. I would check there about the mortality fee. As you probably know, M&E fees are hideous, wasteful and absolutely useless. 

Happy new year and congratulations on your upcoming retirement. I have been retired for 12 years and love it. 

Steve

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Congratulations on being ready to retire at your age. 

My 2¢: If you are netting a guaranteed 3% from that Equitable product, and you want to allocate that much to a super-low-risk investment, you might want to sit tight there.  It may be what is called a "stable value" fund, a kind of investment product that is usually limited to retirement plans.  You just need to check and double check that you are really getting the full return (in other words, that there isn't an administrative fee that gets taken out of your account after the 3% is paid--such an arrangement is common).  You also want to keep an eye on it, in case the "guaranteed" interest rate gets adjusted downwards.  

While that 3% interest account may be a keeper, I would definitely roll over the Lincoln Investment balance into an IRA at Vanguard or Fidelity ASAP if I were you. You may not be paying for an account manager, but you are almost certainly paying account fees that you will leave behind when you move to the IRA.  And there's nothing unusual about the investment options that you are describing.  My (non-professional, non-expert) opinion is that you should bail out of that Lincoln account as soon as you turn 59 1/2.

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The Equivest Prospectus for Series 201, on page 11, says the Separate Account fee of 1.20% (which includes the M&E and an admin fee) is applied to “variable investment options”. I think that means that it doesn't apply to the guaranteed interest account.

The Lincoln Investment 457 account is their Participant Directed Platform which is only available in NJ and a few other districts. It has all Vanguard Admiral class funds and the only fee for both a 457b and a 403b is a single admin fee of $60/yr. They keep it secret and you have to get their permission to use it. But I agree that rolling it into an IRA after retirement or age 59.5 is smart and will eliminate the $60/yr admin fee.

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On 1/10/2021 at 3:03 PM, krow36 said:

The Equivest Prospectus for Series 201, on page 11, says the Separate Account fee of 1.20% (which includes the M&E and an admin fee) is applied to “variable investment options”. I think that means that it doesn't apply to the guaranteed interest account.

The Lincoln Investment 457 account is their Participant Directed Platform which is only available in NJ and a few other districts. It has all Vanguard Admiral class funds and the only fee for both a 457b and a 403b is a single admin fee of $60/yr. They keep it secret and you have to get their permission to use it. But I agree that rolling it into an IRA after retirement or age 59.5 is smart and will eliminate the $60/yr admin fee.

Thanks for your thoughts everyone. So if I keep the 3% guaranteed interest at Equitable for now as a super safe investment....what specific investment(s) would you all suggest for the money I move to an IRA (from Lincoln)?...  Again, it's currently about half in money market and half in a Vanguard retirement target date fund (2025)....about $300,000 all together (at Lincoln).

Thanks!

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21 hours ago, Educator4_Arts said:

So if I keep the 3% guaranteed interest at Equitable for now as a super safe investment....what specific investment(s) would you all suggest for the money I move to an IRA (from Lincoln)?...  

This depends on your overall asset allocation strategy, that is, how much you hold in stocks vs bonds.  We don't know enough specifics at this point to make a recommendation on that front: you need to consider your whole financial picture, not just one isolated account. 

Count that 3% guaranteed account as "bonds" for these purposes.  You can also think of the present value of any future pension or social security as a bond-type part of your portfolio (those can also be understood as annuities, but the stable income is the relevant factor here).  Calculate your total retirement portfolio: is the Lincoln account half of your overall retirement savings, or 80%, or 20%...? 

Do you need to withdraw this money for income immediately, or in small installments every year for life, or do you expect to never spend it and leave it to accumulate for heirs?  If the latter, stocks are the way to go.  If you need to spend it within the next three years or so, short term bonds (or maybe even that money market account) would be appropriate.

The other factor here is your "sleeping point."  Even if the math says that you should put everything into stocks, if you are going to bail out and sell after a big market decline you should not do it.  Over the years the value of your stock investments will experience big declines--you should plan on riding out a 50 or 60% drop (maybe more than once).

Once you've arrived at a ratio between stocks/bonds/immediately needed cash, recommending funds will be easy.  I think everyone here will suggest low cost (such as Vanguard or Fidelity) broad market index funds, some combo of "total (US) stock market," "total international" and "total bond" funds.  What matters is getting a broadly diversified low cost portfolio that you will stay with for the long term.  If you prefer an all-in-one "target date" or "life strategy" fund, those are reasonable choices as well.

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