No. of Recommendations: 0
xnocturnal asks,

At present I am struggling with the following dilemma.
My employer is using variable annuity as an investing vehicle for the 403(b) plan. They (American United Life
Insurance Company) seem to have some decent choices but the EXPENSES ARE HIGH !!!! 1.25% added on top of
the mutual fund-like subaccount expense. So some of the subaccount choices end up costing whopping 2.45% and S@P 500-like subaccount
1.53%. There is also $30 annual fee. How about 8% surrender charge?!!!. Funny that none of the company reps mentions any of that when you
sign up for this thing. Another thing, there is no matching from employer.

Considering all of the above, would I be "foolish" to just stick with my Roth IRA - up 38% this year, and taxable account- up 35% this year, and
not bother with this annuity thing???? Or should I chip in some small amount in to this expensive tax deferral ???
My next question - since this is "before taxes" annuity will I have to pay tax on the whole thing (contributions and earnings) at retirement. I am 44
years old, 28% tax bracket.

I'd max out your Roth IRA before putting anything in the 403(b) plan.

With expenses that high and no company match it's likely that you'd be better off investing a in taxable account with a low-fee tax-managed index fund. If you still have money to invest after funding your Roth, check out something like the Vanguard Tax- Managed Index Fund.

There's an Excel spreadsheet you can use to determine if your 401k (or 403(b)) plan is a good deal. It's the "401(k) Shaft Detector." You can download a copy free at the following link:

The spreadsheet link is near the bottom of the page.

And, yes, if all your contributions are "pre-tax", everything you withdraw from the annuity is taxed as ordinary income.

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