Have I been a fool and not a Fool? When I started teaching in a public school system six years ago, I began participating in one of the TSAs that the district worked with. The company (VALIC) is large and reputable enough and it seemed like a great deal (payroll deductions to make investing automatic, tax-deferment on income and gains, etc.!). Most of my colleagues participate in similar investments in addition to their state pension program (not voluntary) and other investments. I have been contributing $75 per pay period for the past five years and was considering increasing my contribution when I came across your website analysis of TSAs. Should I stop now? If so, should I take an early withdrawal penalty, liquidate, and put the money into liquid investments? Or is there a way to transfer themoney to a more "Foolish" vehicle and avoid penalties? Your response would be appreciated.
Valic (Variable Annuity Life Insurance Company) is also one of the most popular companies on my school district's approved vendor list. The problem is that the sales rep is a wolf in sheep's clothing. You want to check with your business office to see what other plans are available to you. If permitted, you may want to establish a 403b(7) account with Vanguard. Any money you convert from Valic will be subject to a 5% surrender charge, if that money is converted within 15 years of signing the annuity contract. This comes straight from the Valic prospectus regarding variable annuities. One option is to leave the money with Valic and start contributing to another plan.I too was suckered into a variable annuity with this company. Luckily, I only contributed $1,000 before I realized what a bum deal the annuity was. As it is, my district's 403b plans are not very favorable and I have decided not to participate in one. Check out TMF Pixy's post #11725 for a great overview of variable annuities.Keep posting if you have more questions.Dave
flocky -Why the sudden panic? The TSA idea made sense to you in 1993 & you've accumulated some additional retirement funds, right? How have your investments done? If the rate of return is competitive, how have you been harmed? Please don't over-react to something you read, no matter how forthright is appears!Schedule a meeting with your VALIC rep to review your account - how it's done & how your investment accounts compare with other choices in the TSA account. Then look at how they compare with a comparable IRA mutual fund. You may be surprised at the results...Good luck & Happy Holidays, PP
I don't agree at all. Flocky would almost surely do better in a 403b(7) account due to the high fees associated with variable annuities. Come on, PP. You know that variable annuities are rarely appropriate for most people.Without any matching funds inside of the 403b, there is a good chance that Flocky would be better off in a taxable brokerage account after his Roth IRA.Dave
Hi Dave -I don't want to argue, but some 403b/TSA accounts can be quite good! Besides having competitive subaccounts in which to invest, there may be a variety of different fund managers to choose from (i.e. Fidelity, Janus, T.Rowe Price, etc.), and there is usually a "Fixed interest" account that pays more than a money market rate to serve as a "safe haven". Finally, the TSA usually has a loan provision, which shouldn't be the sole reason for selecting it, but it could be handy in time of need (college funding?).I appreciate your position, and I want you to know that one can save for retirement in a 403b/TSA without having to pay more than 1.28% in annual fees! Many mutual funds exceed that expense ratio, huh?Happy Holidays, PP
Flocky --I know you are getting all sorts of advice, so here's some more to further confuse you. One person recommended an annuity with Vanguard if it is available. My only caution there is to make sure you know who is the insurance company running the annuity; don't just assume it's low expense because the name "Vanguard" is associated with it. If it is simply a Vanguard subaccount wrapped in a high priced insurance product, you may not be saving yourself anything. If it is the insurance company through whom Vanguard sells its variable annuities to the general public (I can't remember it's name offhand), it will be a lower cost option.Also, see if your school system offers a TIAA-CREF annuity program. I doubt you will find a lower priced, more reputable organization than TIAA-CREF. They are the largest pension organization in the country, have a lot of clout in the investment community and have historically very good (albeit not spectacular) returns.jtmitch
Jtmitch:Please go back and read my earlier post. I DID NOT recommend a variable annuity for Flocky. Instead, I advised him/her to look at a 403b(7) account from Vanguard. PP, you sound like someone who sells variable annuities. Be sure to let Flocky know that he/she can invest his 403b(7) in an index fund with Vanguard and pay a total expense ratio of 0.18%. Of course his school district must permit him to do this.The best advice that all of us can give Flocky is to take his time in deciding what is best for him. The bottom line is to do your own homework.Dave
Dave --Right you are; I guess I misakenly made the association between between a 403B(7) account and an annuity because so many 403(B) plans essentially force their investors into an annuity plan. If there is a way to invest in a 403B without an annuity wrapper that is obviously the best of all worlds. The second best is a very low cost annuity wrapper around quality, low cost subaccounts. The worst of all worlds is a high annuity charge coupled with high cost, poor performing subaccounts. My caution to Flocky was simply that if one is not careful, one can be hoodwinked into paying for an expensive annuity wrapper to get to otherwise good performing, low expense subaccounts. In my experience, TIAA-CREF with its low cost, generally unrestrictive annuity wrapper and quality subaccounts is a good way to go for those who have that option. I nevertheless agree with you that if you can avoid the annuity altogether and get at quality funds like Vanguard, that is the best choice. jtmitch
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