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URL:  https://boards.fool.com/hey-fools-i-think-that-i-have-a-better-handle-on-19958702.aspx

Subject:  Re: Old Question/jesserivera67 Date:  12/7/2003  12:19 AM
Author:  MTBer Number:  38080 of 94579

Hey, Fools!

I think that I have a better handle on some of this now. I believe that I better understand the mortality and expense charges, the management fees, and the surrender charges. Mortality expenses and fees are 1.0%, and my "subaccount" (500 index fund) runs .32%, which is the "management fee", correct? So, my fees and expenses are 1.32%, plus the $25.00 I pay a year. Make sense?

So, of course that is not too exciting.

What I am trying to understand is this. They talk about how when you begin withdrawals (from the variable annuity), that the money is "taxed as ordinary income tax", which means it is taxed based on my tax bracket. If my 403B was NOT an annuity, it would STILL BE TAXED in the same way, correct? Is it only the "gains" that are taxed?

So, outside of the fees described above, there is no other downside to the variable annuity vs. a regular 403B (yes, as stated, I am trying to gather up a list as to "why we should get the heck out of the annuity only option", for my employer).

In the reading material suggested, when looking at the downside of annuities vs. other investment income, they spoke about a "capital gains tax break". They say this is 15%. They are referring to "after tax" accounts, correct? I don't understand what "capital gains tax break", means per say, but perhaps it means that when income from other sources, such as, lets say, money in a 500 index account in Vanguard, is removed, I would get taxed at 15%? Is this on all the money in there, or just what I made? Or does this relate to something completely different (this I would really like to understand b/c the money I have in said account is my "house fund", so I would like to know the consequences of this).

Anyway, back to retirement, specifically. If I am understanding this whole thing correctly, perhaps my retirement investment strategy (if I am stuck with this annuity at work), should look something like this:

1) Invest up to employer matching in 403B (annuity)
2) Max out Roth yearly
3) Put rest of money in after tax account in Vanguard (or whoever)

Thanks in advance for your wisdom!

-MTBer

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