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Author: Mark12547 Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 76418  
Subject: Re: 403b, 457, pension? Date: 8/16/2005 10:13 PM
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(The only thing I know about 403s and 457s is that some are set up as annuities--a really stupid idea)

The stupid aspects of having variable annuities under a 403(b) or 457 are:

1. High expenses (loads, high expense ratios) for investment choices,

2. Insurance components that, for someone investing for at least five years are probably worthless.

3. High surrender charges.

The problem isn't having a variable annuity in a "tax favored" account per se, but the extra expenses most (not all) variable annuities drag into the picture.

TIAA-CREF 403(b) plans are technically variable annuities, but they don't have the disadvantages of high expenses, insurance component (other than guaranteeing beneficiary receives the member balance as of date of death), or surrender charges.

Vanguard's variable annuities also tend to be relatively inexpensive, but not as inexpensive as TIAA-CREF. On the other hand, Vanguard mutual funds tend to be cheaper than TIAA-CREF.

In the OP's situation, I would suggest looking at all the providers to see which one offers suitable investments with the lowest overall fees. If looking at annuities, be sure to check out any M&E fee or separate account fee as well as the investment advisory fees--before I moved my 403(b) to TIAA-CREF the former 403(b) provider quoted M&E fees in one place (1.05%/yr) and investment advisory fees in another (domestic large caps at 1.50%/yr), probably so I wouldn't see the total cost of investing in one place (2.55%/yr), which was a lot higher than, say TIAA-CREF Equity Index Account (which is 0.36%/yr, and that is inclusive of the 0.005% M&E Fee). Yes, I would rather pay 0.19%/yr (Vanguard Total Stock Market Fund) than 0.36%/yr, but 0.36%/yr (even though it is a variable annuity) is far better than paying 2.55%/yr.

While some people may object to looking at costs for a given type of investment, Morningstar studies have shown that the best predictor of returns from a given mutual fund in a given category is how low the fund's expenses are. Or as some people have stated, "Returns aren't certain, but expenses are."
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