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Greetings, Pandress, and welcome.

<<I recently filled out forms to have funds in a TSA transferred to a 403(b) mutual fund account with Vangaurd. The insurance Co. where I currently have the account has sent a letter informing me that a penalty charge will reduce the value of my account when I make this transfer. I guess I'm looking for reassurance and/or advice about whether this is a good move. The interest rates on the TSA have been low and I'm hoping I can do better in the mutual fund account. I'm still many years away from retirement. Any help with this dilemma will be appreciated.>>

Annuities often have a surrender penalty attached to them that's levied by the insurance company. The decision to bite that bullet depends on your return within the TSA, the penalty, and the return in the alternative investment.

Let's say you have $5K sitting in a TSA that earns 6% per year. The TSA has a penalty of 20%. Your alternate investment would earn 10%. 20 years from now which would give you more money?

At 6%, the TSA would be worth $16,036. Cash it in today, and you would have $4K to invest at 10%. In 20 years, that $4K would be worth $26,910. Which result is more attractive to you?

It's your decision, but I suspicion if you have a significant number of years before you need the cash, surrender of the TSA may be a Foolish choice. Just run the numbers to see.

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