403b Question

Somebody may have to correct me, but I believe all funds you put into the 403b are not taxed right now, just when you pull money out. Some companies also match the first couple of percentage points you put into the 403b (like a 401k), which is obviously a great thing. It is the only place you are ever GUARANTEED to make an instant 100% return.

Money that you would put directly into a mutual fund would be after-tax dollars. Also, when you pull it out in future years, you would likely pay capital gains taxes on top of that.

Nah, not true. It used to be that way, though. In 1986 the IRS changed the rules - you put pretax money directly into a mutual fund through a 403b. It used to be that you HAD to put it into an annuity. Now you get the choice.

I'm just wondering what's the better choice ... annuity or mutual fund (directly).

Lose weight!

It really depends on the charges of your 403(b) expesnses.

What are the options with your 403(b)? What is the yearly expense of the index fund if you have that option in your 403(b)?

Most likely you are better off with spliting contributions in a Roth and the 403(b) so you have tax diversification.

Why do you want to get an annuity at your age?

Okay technically buying any mutual fund in a 403(b) is a variable annuity. I assume that isn't what you mean when you are talking about when you are talking about buying an annuity.

I am not sure I am understanding your question. If you question is, should I buy a mutual fund inside the 403(b) or buy a Vanguard fund, more than likely you are better off buying inside the 403(b) but you have to look at the expenses in the 403(b).

But you should think about contributing to the 403(b) and into a Roth. You can set up a Roth at Vanguard or any discount brokerage and buy low cost no load fund (I prefer index funds).

If you are wondering if you should buy an fixed annuity or a mutual fund in a 403(b), I'd again look at your expenses in the 403(b) but you are really comparing two completely different products. At your age, I think you may want to take more risk to earn higher returns than a fixed annuity.

Roth > personal account

403(b) with low expenses > personal account

With a Roth or 403(b) you won't have to pay taxes on earning each year. Your money can compound without tax consequences.

When the Roth, you won't ever have to pay taxes on the earning if you follow the rules.

With the 403(b), you will have more money to invest since you contribute with pre tax dollars. You won't pay taxes on the earning as it compounds. You will pay taxes on the distributionss after age 59 1/2 but you may be in a lower bracket when taking distibutions so you may make out that way too.

You can choose to have 403b/401k contributions in the 'standard' formate, pre-tax with taxes later or you can have them post-tax in a Roth IRA mechanism. For me, the constraints at our income level make for a high marginal tax rate and hence argue against a Roth (and it might lead to AMT -- alternative minimum tax -- complications, probably not an issue at this point for a teacher unless there is a high-salary position, including a spouse). Note that there are fewer constraints on when funds have to be withdrawn with a Roth.

Does teaching ALSO give a retirement plan that is essentially an annuity (and Social Security is an annuity arrangement).

If you want to know more from a runner, talk with malmo, I am guessing.

By all means, get out of annuities and into mutual funds!

Do a broad-based index fund with low expense ratios.

Go to the following website

Stay out of "annuities" if at all possible. DEFINITELY invest directly with a company like vangaurd, T Rowe Price or Fidelity - Low fee/no load. There are many other things to consider in all of this - not the least of which are new 403b regulations that are being phased in over the upcoming year. The above site has GREAT resources for 403b participants. Post your questions on the 403b message board there and you will get some good, general advice. There are also tons of links to more specific information.

By the way, a number of the above posts are inaccurate. Get your own info off of the site I linked, not off of Letsrun message board.

Teacher Too wrote:

By the way, a number of the above posts are inaccurate. Get your own info off of the site I linked, not off of Letsrun message board.

I appreciate the advice. I just ignored some of the above posts, so thanks.

Basically, I got into an annuity early in my career, and now I'd like to get out (transferring assets to Vanguard)- I'll eat a transfer fee, but I've got quite a few years to go before I'm 60. Err, I mean 59 1/2.

I'm confused why you are transferring this now and paying a fee. Why? If I missed something, you had this $$$ you are transfering now in a 403(b) and could also be subject to pay taxes on that immediately. Correct? Bad move. Just open a mutual fund and go from there. Roth is the way to go over a traditional because you can take out a huge lump sum and not get taxed when taking out. You know, if you wanna by an RV or a condo on the golf course. But in a traditional or 403(b), you are subject to current tax structure laws when pulling money out so pay attention. But you may want to switch to a 403(b) or traditional IRA some years if your income levels toe the line to moving up a tax bracket. My wife and I are in that dilema now so we've gotta play it smart this year. Then with the bigger return we'll get next year, it will pay for one of our Roths for next year.

Also, check out

www.janus.com

. I took some hits there years ago as most other funds did with other companies, but it's kicking ass now. You invest directly with them so fees are very low and you skip the middle man. Also, very easy to use.

Also, someone mentioned companies will match 403(b) contributions. Not sure about that one because I believe they are limited to some government agencies and non-profit groups. Also, I do not believe matches are allowed at all. If anyone knows the truth on that one, spit it up because I've got an idea.

Hope this helps.