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403b Mutual of America vs. Taxable
Old 02-09-2017, 04:51 PM   #1
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403b Mutual of America vs. Taxable

Question for the group:

DW asked me yesterday if she should contribute to her 403b as pre-tax or Roth. I said probably pre-tax since I expect to be making less money in retirement but bring home the plan information; she brought home the glossy 2-page propaganda sheet. Long story slightly truncated: I went through the Mutual of America's prospectuses and her 403b is a variable annuity contract. They offer a variety of funds of medium to poor quality. Total fees, as far as I can tell, are 1.36% to 2.2%, depending on funds selected, plus $24/annum! DW wants to contribute 10% of her salary, ~$4k/yr, because that's what the adviser said was the ideal amount. There is no company matching incentive, and I already fully fund her IRA.

My question is, is it better to pay these exorbitant rate for the 403b tax shelter or pay ~0.16% ER for superior Vanguard funds in a taxable account? We file jointly, so the tax shelter would be in the 25% bracket. I'm guessing it's a close call, since I'm not sure if the tax rate at which we will withdraw in 22yrs will be significantly lower. But the only math I was ever good at was algebra, this accounting stuff trips me up. I trust the wisdom of this group more than anywhere, so I'm eager to see what you all say.

Thank you much.
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Old 02-09-2017, 05:16 PM   #2
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Originally Posted by cooch96 View Post
Question for the group:

DW asked me yesterday if she should contribute to her 403b as pre-tax or Roth. I said probably pre-tax since I expect to be making less money in retirement but bring home the plan information; she brought home the glossy 2-page propaganda sheet. Long story slightly truncated: I went through the Mutual of America's prospectuses and her 403b is a variable annuity contract. They offer a variety of funds of medium to poor quality. Total fees, as far as I can tell, are 1.36% to 2.2%, depending on funds selected, plus $24/annum! DW wants to contribute 10% of her salary, ~$4k/yr, because that's what the adviser said was the ideal amount. There is no company matching incentive, and I already fully fund her IRA.

My question is, is it better to pay these exorbitant rate for the 403b tax shelter or pay ~0.16% ER for superior Vanguard funds in a taxable account? We file jointly, so the tax shelter would be in the 25% bracket. I'm guessing it's a close call, since I'm not sure if the tax rate at which we will withdraw in 22yrs will be significantly lower. But the only math I was ever good at was algebra, this accounting stuff trips me up. I trust the wisdom of this group more than anywhere, so I'm eager to see what you all say.

Thank you much.
I would ask her employer why they have such a terrible 403b. Annuity contracts are always more expensive than regular accounts, but those fees are ridiculous. TIAA-CREF have variable annuity accounts with fund fees of 0.5% and there nothing to stop a 403b being at somewhere like Vanguard.
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Old 02-09-2017, 05:50 PM   #3
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I would ask her employer why they have such a terrible 403b. Annuity contracts are always more expensive than regular accounts, but those fees are ridiculous. TIAA-CREF have variable annuity accounts with fund fees of 0.5% and there nothing to stop a 403b being at somewhere like Vanguard.
Ooh, I would have to be at my most absolutely tactful. DW works for Girl Scouts of W. Washington; they tend to be very sensitive to perceived mansplaining. I don't think I could pull it off.
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Old 02-09-2017, 06:31 PM   #4
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It all depends on what your tax rate when you withdraw is.
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Old 02-09-2017, 08:32 PM   #5
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Are you 100% positive the MOA annuity is the only option? DD signed up for one of those with the FA that visited her employer. Turns out they have many choices including Fido mutual funds (but Fido doesn't send a rep to the cafeteria).
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Old 02-09-2017, 08:39 PM   #6
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Are you 100% positive the MOA annuity is the only option? DD signed up for one of those with the FA that visited her employer. Turns out they have many choices including Fido mutual funds (but Fido doesn't send a rep to the cafeteria).
The 403b variable annuity contract is handled by MofA. They offer a couple dozen options or "underlying investment funds". including some from Fido and Vanguard. However, the minimum annual fee for MofA is 1.2% + $24 plus the ER for the individual funds. That's how I calculated the 1.36 to 2.2% range.
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