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I've maxed out my 401k and TIRA contributions and have a retirement goal that will require a bit more than that. I'm looking at these alternatives:

1) Index fund - Total Market most likely or some Tax Managed Vanguard funds...with LTCG being low (I've got about 20 years) this sounded pretty good.

2) Annuity - with Vanguard or TIAA-CREF just to keep expenses down. This seemed good from a tax deferral perspective.

3) Deferred Comp - My job offers this program which essentially operates just like a 401k but the assets are not protected by the same regulations as the 401k. My understanding is if my company went bankrupt or something that any assets in Deferred Comp could be comprimised.

TIA
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I'd go with an index fund or index ETFs. Annuities are pretty inflexible and deferred comp sounds like a questionable long term risk that greatly ups your exposure to your employer.
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I'd probably go with the Vanguard tax managed funds. Annuities tie up your capital, charge higher fees, have fewer investment options, and you lose the preferential div/LTCG tax treatment. Paying a 15% tax on gains here and there works out better than paying 30% at the end.

Another option is individual stocks. Here you gain total control over your cap gains, and won't have to worry about a fund paying taxable distributions.

The deferred comp option sounds viable too, but you'll have to investigate it to determine if the comp is guaranteed/insured or if there is some default risk.

Nick
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Annuities tie up your capital, charge higher fees, have fewer investment options, and you lose the preferential div/LTCG tax treatment.

Broad statement which is misleading. OP mentioned TIAA-CREF variable annuites, which for the most part are no-load and have zero surrender charges with very low fees. Plus they have guaranteed rate of 3% which is higher than any MMF I know of.

Any of these three would be good ideas. The Non-qual deferred comp is intriguing since the assets would grow tax deferred. Depending on your asset allocation, risk tolerances, and current cash requirements will dictate what is best.

buzman
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Broad statement which is misleading. OP mentioned TIAA-CREF variable annuites, which for the most part are no-load and have zero surrender charges with very low fees. Plus they have guaranteed rate of 3% which is higher than any MMF I know of.

***********************

I agree that TIAA-CREF's annuities are so much better than the usual run that I would hesitate to even call them annuities, but I think you are a bit mistaken about their product design. IIRC, they yanked the 3% minimum product a while ago.
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Well we are both right, they have a guaranteed product at 3% but:

A. Not available in all states (I think.

B. It may only be available through their 529 plans.( Iknow)

However, if you have an existing TIAA-CREF annuity you can get the guaranteed rate which is currently paying 3%. I am certain of this.

Sorry for misinformation.

buzman
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jesserivera67: "3) Deferred Comp - My job offers this program which essentially operates just like a 401k but the assets are not protected by the same regulations as the 401k. My understanding is if my company went bankrupt or something that any assets in Deferred Comp could be comprimised."

Unless I were the Chairman, CEO, COO, Treasurer/Comptroller, Executive/Senior VP of Finance, some other officer and also a board member, or the numero uno protege of one of them, I would generally be leery of the deferred comp plan, absent an incredibly compelling reason to use it (i.e., some amazing investment opportunity not otherwise available to me).

Just my $0.02. Regards, JAFO
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A non-qualified deferred comp plan, by definition, has to have a "substantial risk of forfeiture", otherwise the funds would be taxable to you immediately.

I agree with JAFO (big surprise). Unless you are a senior officer or similar of this company, I'd be highly reluctant to put funds into this deferred comp plan. It's also rather unusual for a company to have a non-qualified plan available to individuals beyond high ranking officer/VP's.

-synchronicity
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Hi Jesse,

Given that LTCG rates are so low now, I would go with (1) Tax Managed Funds in a taxable account, and wait to see what Congress does with tax rates in the future. There are many advantages to taxable accounts, not the least of which is access to the monies at any time (tho you'd have to sell the underlying funds, of course).

5 years ago I faced this same decision and chose an annuity, because my federal ordinary income rate is quite high, plus I pay high city and state income taxes. My overall ordinary income tax rate will be MUCH lower when I'm retired. If I was faced with this decision now, I'd go with a taxable account for the time being--it LTCG rates go high again, you can always buy an annuity at that time.

Just my 2 c,

2old
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3) Deferred Comp - My job offers this program which essentially operates just like a 401k but the assets are not protected by the same regulations as the 401k. My understanding is if my company went bankrupt or something that any assets in Deferred Comp could be comprimised.

TIA


My husband has a deferred compensation plan. It has mutual funds with well known mutual fund companies for the investment choices. That seems safe to me. (I have NOT investigated this matter.) I'm pretty sure there is a Total Market Index fund as one of the choices.

It used to have company stock as a mandatory(?) option. That seems a lot riskier.

He had to make a one-time election to receive the money in a lump-sum or over 10 years when he separated from the company. He chose lump-sum because he thought the company might go bankrupt or something within the 10 years before he had all his compensation back and he didn't want to risk that. Now we feel silly about that choice because the company is Intel. But 28 years ago, who knew?

I suggest you look at the management fees on the investment choices available in the deferred compensation plan as well as your choices 1 & 2. Also compare the tax picture. Income taxes, Medicare & FICA, AMT. It's complicated, so you should play with the numbers until you get a feel for them. You also have to predict tax-law changes and your financial picture in the future. You might want to get help.

But if you procrastinate like I do, you could sign up for it while you are figuring it out. Especially if you can change your mind about contributing later.


Vickifool
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I agree with JAFO (big surprise). Unless you are a senior officer or similar of this company, I'd be highly reluctant to put funds into this deferred comp plan. It's also rather unusual for a company to have a non-qualified plan available to individuals beyond high ranking officer/VP's.

-synchronicity


I had no idea! VickiSpouse is an "individual contributor."

But I just checked with VickiSpouse and he said that he is no longer eligible because he doesn't make enough money. But he had already quit deferring compensation because he thinks we have enough in there.

Vickifool
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