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Author: jesserivera67 Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76237  
Subject: Re: Old Question/jesserivera67 Date: 12/8/2003 11:42 AM
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"If, for example, we went to a 403B (without the annuity component), what kind of fees would we have?

Depends on who your get your 403b from. Since we've been talking about Vanguard here's a link to there business retirement plans. Just click ont he 403b section.

http://flagship4.vanguard.com/web/corpcontent/scatRetBusSubcat.html

"If a business had their 403B through Vanguard, should I expect that the above expense in the same fund would stay the same, or would it increase?"

Depends on the plan. Typically the answer is yes the fee would be the same. You'll need to read through it though.

"Additionally, would there also be a administrative fee?"

Yes...again depends on the fund. I believe Vanguard charges $15 annually per fund.

"Any other fees that a typical 403B would have?"

see above.

"However, I have been putting a small deposit, monthly, into my 500 Index toward this savings goal. After reading about how these additional deposits would qualify as "short term capital gain" (taxed as ordinary income), if I withdrew it within a year, it makes sense that I immediately stop these deposits. Right?"

Depends on how long you've held them, longer than a year? If you're planning to use the money within a year then they shouldn't be in any equity investments. Too volatile and if "things" happen you could stand to lose a large amount of your investment. I get this moved to a more liquid account. ING is fine and probably gives better interest than most all brick and mortar companies (e.g. BofA, Wells, etc.). You could also place in money market mutual fund, 1 year CD, etc. Lots of options but keep that money in a very safe place if you're going to use it in a year! Equity investmests should not be made unless you have 5 years or more to invest in them. I prefer 10 or more to be a little more safe.

"...is there any other downside, financially, to leaving the rest of the "house fund" in this account until I am ready to purchase my home? Actually, I guess that the more the money grows, it means that much more money would be taxed at 15%."

See above. Again, if you're using this money within a year I would HIGHLY recommend you move it to a safe place such as the examples I gave above. I see you have a lot of questions regarding taxes so I'll leave you with some links to do some additional research (and more than likely ask even more questions!!! :-) )

Taxes are unavoidable, it's just a matter of when. Yeah, much more would be taxed but your anticipating your gains to be much higher as well. Don't let taxes scare you. They're just a fact of life that all of us need to deal with.

"I would have to make over 17% on the investment in order to beat the 2% I would get at ING (after losing 15% on the withdrawal from Vanguard). Am I looking at this correctly?"

Not exactly. Let's go back to the $10,000 investment that grew to $11,000 and say you held onto it for over a year so you will pay the long term gain on the $1000 (growth of 10%) so that would be 15%(long term capital gain tax). You take 15% of the $1000 or $150 for taxes. You still make $850 on your investment of $10,000.

If you sold the investment within a year (short term) you'd be taxed at your ordinary income rate, let's say 28% so you'd pay about $280 instead. You'd still make $720 on your investment. That's basically the advantage of long vs. short term taxes. Make sense?

No need to apologize for the questions that's what the fool site is for!!! I will say when you post don't necessarily put a name in your post. I have no problems helping but there are a ton of folks on this site that are ALOT smarter than I am (TTRoberts, yobria, BuildMWell, pauleckler, PosFCF, to name a few) that can offer additional insights that I may have left out.

Since you've opened a can of worms even more info on the 403b's. I decided to do some research in the area that will perhaps help your conversation with your CEO.

403b's came into existence around the 1930's. At that time they were all required to invest in annuities (Ah HA! I knew there was something fishy here.) In 1974, mutual funds were made available for 403b investments but the insurance companies have such a strangle hold on them that as of 2001, over 80% of 403b's were invested in annuities.

I have a hypothesis for this. The 403b market caters to nonprofit organizations. Budgets for these organizations are typically very tight and HR departments are very thinly staffed. Many of these organizations just want to set something up quick and dirty so they fall prey to insurance salesmen and VOILA...another annuity in a 403b plan.

You'll also notice how 90% of all articles are written for 401k's. I have a thought on this as well...the 401k market caters to "profit" organizations which more than likely have larger incomes...the mutual fund industry unfortunately cater to them because of larger investments, leaving the 403b's out in the cold unfortunately.

It seems that you will need to get some additional support if you're to convince your CEO so talk to as many people as you can so you can all discuss with him. I would explain to him that all of his employees deserve a good retirement and the 403b plan represents an opportunity for all of them to have just that; however, money is being siphoned away due to fees associated with the annuity whose death benefit is just not worth it.

I wish you the best of luck on this as it is no easy task but you're on a journey that I hope and pray ends well for you.

Here are some additional links for you...

Capital Gain
http://www.fool.com/school/taxes/2000/taxes000107.htm
http://www.fairmark.com/capgain/index.htm

403b IRS info
http://www.irs.gov/pub/irs-pdf/p571.pdf

Books (I took a lot of the information I gave you from these)
Retirement Bible (great explanations of all types of retirement vehicles)
http://www.amazon.com/exec/obidos/tg/detail/-/0764552457/qid=1070901557/sr=1-1/ref=sr_1_1/104-9019455-1783130?v=glance&s=books
Investing Bible (Solid general info)
http://www.amazon.com/exec/obidos/tg/detail/-/0764553801/qid=1070901557/sr=1-2/ref=sr_1_2/104-9019455-1783130?v=glance&s=books

Jesse
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