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Old 11-02-2007, 10:28 AM   #21
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Originally Posted by cute fuzzy bunny View Post

2% over 15 years is a lot worse than 15-20% once.
Ok, still trying to wrap my head around this one (type slowly cfb )

If I reduce my contribution (assuming I can) and i just pay the taxes, put in taxable investment (after Roth is maxed), aren't I paying the 28% tax each year/month on that amount?

Or are you saying if i rolled my whole 403b over, then that is a one time hit...

If i think of something clever to say, i'll put it here...
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Old 11-02-2007, 10:47 AM   #22
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Nope, once you've paid income taxes on the pay, you dont pay income taxes on it again ever.

You will pay taxes on distributions from that invested money, and capital gains on it when you sell the investments. If the investments throw off no dividends, interest or gains (unlikely) they there would be no taxable events.

Think of it this way. Each year your 403b account will be: (Balance + contributions + income tax savings for that year - fund expenses for that year against the entire balance + investment gains for the funds - underperformance of those funds vs funds unavailable in your 403b)

Your taxable account is (Balance + contributions - income tax on contributions -fund expenses for that year against the entire balance + investment gains on the funds + overperformance of those funds vs the limited selection in the 403b

You're only paying income taxes on that years income, but in both cases you pay fund expenses against the entire balance for each year that you hold those funds.

Other factors are that 'losing' money to income taxes means less working for you in account under a taxable scenario vs the 403b. But as your account grows, the actual dollar cost of the additional expenses and underperformance also grows.

In my case the higher fund expenses (some of them buried), underperformance, and other layered fees for account management (also some buried in the paperwork) amounted to over 3% per year. We wont be using that money for 20 years. Our income tax rate on that money was 15%.

Not a no-brainer, but a pretty low-brainer.

Be fearful when others are greedy, and greedy when others are fearful. Just another form of "buy low, sell high" for those who have trouble with things. This rule is not universal. Do not buy a 1973 Pinto because everyone else is afraid of it.
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Old 11-02-2007, 02:25 PM   #23
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bright eyed,

Ed Chang wrote an article and spreadsheet on high cost 401(k)s. In case you don't have open office to download the spreadsheet, I saved a copy in Excel. If you're only going to be there a couple of years, and will roll the 403(b) into a lower cost IRA, you can probably withstand higher expenses for a few years. A couple friends [who are contractors] have always had rather bad, high fee 401(k)s, but because they change jobs every couple of years, they just max out the 401(k), and then roll it into an IRA at Vanguard when they leave.

- Alec
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Old 12-15-2007, 02:20 PM   #24
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Ok, i finally got a hold of the contract and it says the withdrawal penalty now (i'm about 6 years in - in a 10 year withdrawal charge schedule) is 4%...

so this means that if i roll this plan into an outside IRA that i would be charged income tax plus 4%?

or perhaps cfb was saying that if i don't ever put the $ in the 403b in the first place, and put in outside ira that is when i get taxed?
If i think of something clever to say, i'll put it here...
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Old 12-15-2007, 03:47 PM   #25
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457(b)s can be even worse than 403(b)s in the sense that there is only one vendor at a particular institution. If that offering is bad, one has little choice.

What type of joints do you 403 lads work @?
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Old 12-15-2007, 04:53 PM   #26
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bright eyed,

You really have to know you plan requirements.

If you CAN roll it, it should be tax free, but you really need to check the plan. Example: I have one 403b accrued while I worked for the state under an optional retirement plan (state put $$ into an account and state has no futher obligation). I am now back with the state under the standard defined benefit pension plan (retirement pay based on formal calulation of ave 5 yr salary and years of service - excluding the optional years of service).

If I roll the old 403b (away from the original high expense vendor), the state assumes I retired, and this will affect standard defined pension (CURRENT benefits)!!
Basically, current pension would stop at todays calculation and if I continued working, new pension employment period would start, requiring me to revest (another 6 years), etc. A very ugly scene.

I would not have anyone adopt my mode of living...but I would have each one be very careful to find out and pursue his own way, and not his father's or his mother's or his neighbor's instead. Thoreau, Walden
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