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Author: Mudster1 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75340  
Subject: IRA vs. Annuity? Date: 3/15/2002 5:07 PM
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Perhaps I should have used the subject header: Tax deferred vs. Taxed investments. I currently invest through an annuity plan at work (403b, pre-tax, my employer does not match funds). I am not crazy about the range of funds offered by the company I deal with, but I have few options. The company I deal with appears to be the best option I have in terms of a 403b.
Assuming I am in the tax bracket of someone with an adjusted federal income around 55 grand per year and I have $3600 to invest per year (for the purposes of this example and because my wife's retirment options are not the same as mine), would I be better off taking the money post tax and putting $3000 into a Roth IRA (12 monthly payments of equal amounts on 1st of month) and putting the other $600 into a stock index fund (let's use the Vanguard S&P 500 index fund), or continuing to invest in the annuity pre-tax? In the annuity, I am invested in a stock index fund, a mid-cap index fund and a conservative bond fund. When I take money out of the annuity at retirement, I will have to pay 1.5% of it to the company.
I can't predict what the annuity earnings will be, but I do not believe they will match the s&p 500 index over the coming years based on past performance (and the fee). For purposes of this, let's be optimistic and say the return will be 8% before fees.
Let's base this on 23 years until retirement.
By retirement, I may be in a higher tax bracket based on investments, but I may not, as I don't expect my salary to grow that much (I am a teacher). I won't jump up more than one bracket.

I'm just going to admit here that I don't have the accounting savvy to figure this out on my own, at least not with complete confidence. If anyone can help me compare the two options, I would be very appreciative!
This is not my only retirement savings/investment, but this will help me decide if this pre-tax savings is really saving me money.
Thanks for your help!
Mudster1
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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 33996 of 75340
Subject: Re: IRA vs. Annuity? Date: 3/15/2002 6:25 PM
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Don't forget -- in many cases you can rollover your 403(b) to another provider while you're still in service!

It may be a good idea to put the money in a money market fund that has no front or back end loads or surrender fees, and then, when the balance gets high enough, move the money to another provider (like Vanguard or TIAA-CREF).

If you can't do that, then a regular taxable account is probably a better idea than a high-fee 403(b) annuity!

A Roth IRA is most likely going to be a better box for your funds than a 403(b) of any sort.

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Author: FoolishWarthog Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34004 of 75340
Subject: Re: IRA vs. Annuity? Date: 3/16/2002 10:59 PM
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What about a traditional (tax deductable) IRA? You're right in the ballpark of where it begins to phase out. I'd definately do that before I put the money in to a taxable account. Perhaps put whatever the deductable limit is in to a traditional IRA and the remainder in to a Roth?

-Warthog


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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34005 of 75340
Subject: Re: IRA vs. Annuity? Date: 3/18/2002 8:53 AM
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Warthog,

Mudster is covered by a retirement plan at work, so the threshold for Traditional IRA deductibility is much lower.

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Author: Mudster1 Three stars, 500 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34074 of 75340
Subject: Re: IRA vs. Annuity? Date: 3/30/2002 1:46 PM
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Don't forget -- in many cases you can rollover your 403(b) to another provider while you're still in service!

When I spoke with a Vanguard Representative on the phone, I was told that I couldn't transfer my 403b unless I changed jobs. Now, to me this seems kind of unlikely, since I should have the right to control where my money is as long as it is in a qualifying type of account.
Do you know where I can find this sort of info re: a 403(b)? I will ask at work, but in the past the benefits people have been less than helpful and knowledgable.

Thanks,
Mud


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Author: jrr7 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 34077 of 75340
Subject: Re: IRA vs. Annuity? Date: 3/30/2002 11:41 PM
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Try calling Vanguard again. This isn't a well-known tactic, so it's possible that particular representative didn't know about it but another one might.

Are you an educator?

TIAA-CREF will be happy to assist you with transferring the 403(b) to them.

You don't have to involve the folks at work at all, in any event.

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