We have already discussed some of the tax advantages of contributing to your 403(b) (it can also be called a "Retirement Plans/Tax Sheltered Account"), but the quick math shows you receive a current year tax deduction for any contribution of about 25% - 30%.
What is also important when it comes to these assets is that fees matter! Not all 403(b) companies are equal in fees and/or withdrawal fees!
Pay attention and ask questions about fees. If you think it sounds a bit questionable, it probably is. Mortality fees are pretty much worthless, so any account that will charge those is taking money from you with absolutely no return.
The average annuity charges you 1.35% of your assets every year (Morningstar 12/31/06). The majority of that money goes to pay the commissioned salespeople that sell most variable annuities. Additionally, you may also pay a 1% mortality fee on top of that charge.
Following are the four options available for Gwinnett County educators - Click to go to the Gwinnett County Tax Sheltered Investing Options website.
What is also important when it comes to these assets is that fees matter! Not all 403(b) companies are equal in fees and/or withdrawal fees!
Pay attention and ask questions about fees. If you think it sounds a bit questionable, it probably is. Mortality fees are pretty much worthless, so any account that will charge those is taking money from you with absolutely no return.
The average annuity charges you 1.35% of your assets every year (Morningstar 12/31/06). The majority of that money goes to pay the commissioned salespeople that sell most variable annuities. Additionally, you may also pay a 1% mortality fee on top of that charge.
Following are the four options available for Gwinnett County educators - Click to go to the Gwinnett County Tax Sheltered Investing Options website.
- AIG Retirement (VALIC) – Total Annual Fees 1.75% - 2.5%
- Annuity Product – quarterly fee of $4
- Mutual Funds with normal fees (0.75% – 1.5%)
- Higher fees based on mortality (1% additional expense)
- Can have fees for withdrawals – no fees under only certain circumstances
- Lincoln National – Total Annual Fees 1.5% - 2.5%
- Annuity Product
- Mutual Funds with normal fees (0.5% – 1.5%)
- Higher fees based on mortality (1% additional expense)
- Can have fees for withdrawals – no fees under only certain circumstances
- Fidelity – Total Annual Fees 0.2% - 1.3%
- Can be an annuity based product – is an option at retirement
- Mutual Funds with normal fees (0.2% – 1.3%)
- No mention of mortality or withdrawal fees
- Jefferson National – Total Annual Fees $240 plus 0.23% - 2.72%
- Annuity Product
- Mutual Funds with normal fees (0.23% – 2.72%)
- Set mortality fee of $20 per month ($240 per year)
- Some funds have transaction fees ($20-$50)
- No surrender charge
4 comments:
Thanks a lot for this. My wife works in Gwinnett, and this is the first place I was actually able to find what her options were. Every time she asked for assistance, someone from Jefferson National showed up. After the second pushy salesmen tried to sign her up for an annuity, I decided that I had to do my own research, since nobody at the school was going to help her.
Do you know if Gwinnett teachers can sign up for Fidelity online (at http://mysavingsatwork.com/ole.html) or do they have to call? They're the only company that doesn't have a represenative that will come to the school to push their products, and the county isn't being helpful.
This is a great blog, by the way. You're my latest hero :)
Bob,
Thanks for your comments and your question. I started the blog to help educators, like our wives, because I was not happy when I heard and dealt firsthand with some of the "pushy" salesmen. When I spoke to the faculty at her school last year to discuss TRS and 403(b) accounts, I was amazed to hear some of the stories. That one event helped push me towards starting this blog.
Anyway, I called Fidelity myself, and the only way to get signed up is by calling them and having them mail you the information. They will ask who the employer is (Gwinnett County Public Schools) and some information about your wife to mail it out to you.
I know that in today's world you would think that it would be quicker and easier than this but unfortunately not this time.
Anyway, if you call Fidelity at 800-343-0860, it will ask for your ID, but just hit "pound" (#) on your phone at each prompt until you get a representative. They are very nice and very helpful, but I do wish there was an easier way.
Once the account is setup, using Fidelity's website is a breeze, but it looks like this will be a "snail mail" account opening.
On the bright side, your wife will not be paying a mortality fee for the rest of her life or any withdrawal fees to transfer the 403(b) to an IRA later down the road.
I'm glad you like the blog, and if you have any other questions, always feel free to ask.
Best personal regards,
Robby
Hi guys,
I'm wondering if you could help me. I have been dealing with the headache of my wife's retirement plan for the last 3 years. She has been a teacher for 6 years now and we stopped contributing to the Lincoln variable rate annuity because it is garbage and i was an investment newbie then. The lady completely did not disclose what fee's were involved and when i looked it up i almost had a heart attack! Now that money is locked away and we can't even get to it! My question is because she has not contributed the past few years, and social security is not taken out when i enter her paycheck on my tax software we go from a $3000 refund to owing 1900. Are you kidding me? a $5000 dollar penalty for not contributing to a plan? Is she having to pony up for not paying into social security? I would think all we would have to pay would be whatever taxes are needed to cover the difference.
Why can't the county just offer her some options from vanguard or T rowe? Also, can I just open an IRA for her at one of these other investment companies outside the system and get the SAME tax benefit as the money that comes out pre-tax?
Joseph,
Thanks for your comment, explaining your situation, and your questions.
First, yes, dealing with the retirement plans can definitely be a headache, so I feel for you there.
403(b)'s are notorious for hiding fees, so it really is tough to decipher what you are paying for. It is not the nominal quarterly fee. In the future, don't look to stop immediately, but instead look to other possible options. In your case, Fidelity is the best option with the lowest fees.
Fidelity is a great option, and honestly I like Fidelity more than Vanguard or T Rowe Price. All three seem to do a great job with fees, but Fidelity generally has a wider range of investment options whereas Vanguard is more index based.
As for the tax issue, since your wife does not contribute to a 403(b) or SS, that income is fully taxable at your income rate. It is not to make up for not paying into SS, but since she is not, it is not "free" money either.
Since your wife is "covered" by a retirement plan (TRS), she cannot open an IRA and make a tax deductible contribution. In her case, the 403(b) is going to be the only way for her to contribute pre-tax money to get the same benefit.
I hope this are some good answers for you, but if not, please let me know.
Thanks again for your question, and keep reading the blog.
Best personal regards,
Robby
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