403b's

[SHSpence]

Hi there, my name is Suzanne and I am a school teacher. I have some of my retirement money in a 403,b. I plan on retiring when I am 66 which is in 4 years. Can I take this 403b and transfer it to a Roth IRA and pay the taxes this year?

Thanks.

[yakers]

Try 403bwise.com for a lot of detailed 403b questions. My wife could not move her 403b straight into a Roth until she retired. She rolled the 403b nto a traditional IRA and we convert a little each year into a Roth. This may be a better approach tax wise as if you are converting a lot of money it may kick your income into a higher tax bracket.

[westcoast]

If an annuity, check whether your 403(b) has surrender charges. Who's it with?

[grumpy]

A 403b cannot be rolled over to an IRA while you are still employed by the 403b provider.

[Chuckanut]

Alas, 403b's are one of the worst features of being a teacher. Due to school boards being fearful of law suites, we are often stuck with poor choices. In my own case the funds are all loaded, have high yearly fees, and generaly do not perform as well as the index funds (what else is new?)

[SHSpence]

It is a tax-sheltered annuity. It is with Western Reserve Life. I have been making contributions since 1996.
Thanks for your reply.

[westcoast]

Western Reserve Life is not listed on 403bCompare, but most annuities have rolling surrender charges. Your contributions from 1996 will most likely not be subject to surrender charges, but your contributions from 2000 on might be. If the surrender charge is low, for early years, that's one thing, but you might not want to lose 7-18% of your recent contributions. What's the guaranteed interest rate?

[Rustward]

Quote:

Originally Posted by grumpy A 403b cannot be rolled over to an IRA while you are still employed by the 403b provider.

Depends on the plan. Check with the plan administrator to determine if in-service transfers are allowed. They may or may not be allowed. If in-service transfers are not allowed, you will have to terminate before you can transfer.

Check your contract about surrender charges. Many of them evaporate after seven years, so if in-service transfers are allowed, you can roll the whole annuity into a traditional IRA, then convert, to a Roth, as much as you can without a surrender charge -- likely any contributions made before 2005. Then every year or so, you will be able to transfer another year's worth of contributions without a surrender charge.

[ERD50]

Quote:

Originally Posted by Chuckanut Alas, 403b's are one of the worst features of being a teacher. Due to school boards being fearful of law suites, we are often stuck with poor choices. In my own case the funds are all loaded, have high yearly fees, and generaly do not perform as well as the index funds (what else is new?)

This might be over-generalizing. DW works for a school district (admin, not a teacher), and Fidelity was among her 403B choices. There is an annual fee, but something like $24?

-ERD50

[SHSpence]

Unfortunately, we were never given any options that included wiser choices. All of our options are insurance agents, surely there was and still is money being passed under the table to these people. Many teachers do not understand or know what a 403b is. Thank for the info.

[Chuckanut]

Quote:

Originally Posted by ERD50 This might be over-generalizing. DW works for a school district (admin, not a teacher), and Fidelity was among her 403B choices. There is an annual fee, but something like $24? -ERD50

That is good news for the DW. I am glad to hear not all the districts are afraid to use 403b providers such as Fidelity.

[westcoast]

Here's a current story from Kiplinger on this:

Kiplinger.com

[ziggy29]

Quote:

Originally Posted by Chuckanut That is good news for the DW. I am glad to hear not all the districts are afraid to use 403b providers such as Fidelity.

My wife worked for a college bookstore more than 10 years ago, and even back then their 403b plan was with Vanguard. So yeah, it can happen.

[ERD50]

Quote:

Originally Posted by Chuckanut That is good news for the DW. I am glad to hear not all the districts are afraid to use 403b providers such as Fidelity.

Yes, good news for us. But I have no idea if this is common, or a rare exception. I fear it is rare.

It would be interesting to strike up a conversation with DW's co-workers - I doubt many have any idea, or even contribute. Her boss mentioned he was going to look at new cars since his car payments were coming to a close - DW mentioned something about keeping the car, and putting the payments towards savings, and she got that 'deer in the headlights' look.

-ERD50

[Chuckanut]

Quote:

Originally Posted by ERD50 Her boss mentioned he was going to look at new cars since his car payments were coming to a close - DW mentioned something about keeping the car, and putting the payments towards savings, and she got that 'deer in the headlights' look. -ERD50

At the risk of jumping to conclusions, I suspect most education people are liberal arts majors and have little education in business and/or math. And Investing?? Forget it!! I have a business degree which makes me rather unique among my peers in K-12 education.

[Mulligan]

Quote:

Originally Posted by Chuckanut At the risk of jumping to conclusions, I suspect most education people are liberal arts majors and have little education in business and/or math. And Investing?? Forget it!! I have a business degree which makes me rather unique among my peers in K-12 education.

In many states where teachers do not contribute to SS and work a full 30 years, I truly wonder whether a 403 b is of any value at all. As these teachers usually retire into their highest tax bracket they worked in with their pensions. All the money put in while in the younger years and lower tax bracket are delayed and paid at their highest tax bracket. Am I missing something in this situation?

[westcoast]

Quote:

Originally Posted by Mulligan In many states where teachers do not contribute to SS and work a full 30 years, I truly wonder whether a 403 b is of any value at all. As these teachers usually retire into their highest tax bracket they worked in with their pensions. All the money put in while in the younger years and lower tax bracket are delayed and paid at their highest tax bracket. Am I missing something in this situation?

It's a disciplined way to save and encourages more saving since accumulation of the account balance is not slowed by taxes through the years. I wouldn't do it before a Roth IRA, though.

The greater problem is high cost annuities and mutual fund platforms, which seriously slow savings accumulation.

Besides, teachers (at least in California) retire on average at about 60% of their salary. If the high salary was $75,000, then the pension would be around $45,000, which isn't a whole lot higher than a starting salary - so there wouldn't be much of a bracket shift.