IRA rollover - am I losing by rolling now?

[PBAT]

I have been reading this forum, including old posts, for a while now, and have been reading the recommended books. Overall I feel I now have a good grasp of our financial goals and how we want to get there. Our next step is rolling over a few high cost 403b's into a Vanguard IRA.

My question seems stupid, but for some reason I just can't get my head around it to get a clear answer. One minute I think I understand, then not. Please bear with me while I try to explain my convoluted thinking:

The money I will be rolling over was invested about five years ago, when the market was much lower. Since the market is currently at such a high, once I rollover into new funds, will these new funds (assuming same AA and similar funds) rise and fall with the market at the same rate as the old funds would have. (Excluding the effect of much lower costs, of course.)

Basically - does the fact that we will now own the same dollar amount, but less shares, change our future gains/loss.

Thanks!!
Brenda

[Eyerishgold]

It's a good question.

In the end, it all boils down to you trying to time the market, which we all know to be impossible. When you say that "the market is currently at such a high" you're essentially assuming that the market will be lower in the future. The reality is we don't know where "the market" will be down the road. I think you'd do well to roll it over now and take control of your money. You'll have more investment options available to you in the IRA and you can still dollar cost average by setting up a monthly automatic conrtibution.

[RunningBum]

Quote:

Originally Posted by PBAT The money I will be rolling over was invested about five years ago, when the market was much lower. Since the market is currently at such a high, once I rollover into new funds, will these new funds (assuming same AA and similar funds) rise and fall with the market at the same rate as the old funds would have. (Excluding the effect of much lower costs, of course.) Basically - does the fact that we will now own the same dollar amount, but less shares, change our future gains/loss. Thanks!! Brenda

No change. And you won't have less shares. You bought the shares at a lower price in the old account, but that doesn't matter in an IRA. Forget about what price you originally bought them at. I think that's where you are getting confused.

Say you had $1000 to invest originally, in a fund or stock that went for $10. You bought 100 shares. Now say you have $2000 in that account that you want to move. Ignoring things like dividend reinvestments, you still have 100 shares. They are worth $20/share. You don't have more shares. When you buy them in the new account, you will be able to buy 100 shares at $20/share--exactly what you sold.

Maybe I misread the question, I viewed it as a mathematical question. If it's a market timing question, I agree with the above post that there's just too many variables and you can't really predict the future market based on the past.

[2B]

One question I have is what is your 403b invested in now? If you are like the typical Texas school teacher, your 403b is in some form of high fee annuity. If so, get out of that as soon as possible but look at what kind of surrender fees you'll have to pay. It may make sense to wait a year or two if the fees will go away soon.

If you are ready to roll the money over, a dollar in stock mutual funds will buy a dollar in the comparable Vanguard fund. The number of shares does not have meaning. If you are rolling over a 403b that is in "stable value," you will be going from all cash into whatever asset allocation you have picked. You could dollar cost average in but I would recommend just doing it.

If it is any consolation, the S&P500 is within a few pennies of where it was in 2001. Foreign stock funds, particuarly emerging markets, are way higher due to their higher growth and falling dollar -- no consolation there.

[PBAT]

"Say you had $1000 to invest originally, in a fund or stock that went for $10. You bought 100 shares. Now say you have $2000 in that account that you want to move. Ignoring things like dividend reinvestments, you still have 100 shares. They are worth $20/share. You don't have more shares. When you buy them in the new account, you will be able to buy 100 shares at $20/share--exactly what you sold."

Thank you RunningBum! That is the simple explanation that I couldn't come up with myself. I feel a little foolish now, since it seems so obvious.

And since the surrender fees no longer apply to these accounts, I will be rolling over asap. The variable annuity that the biggest account is in charges 1.02%, on top of the ERs which range from .45-1.5+. I'm so glad I found this forum, as well as Diehards!

[2B]

Quote:

Originally Posted by PBAT And since the surrender fees no longer apply to these accounts, I will be rolling over asap. The variable annuity that the biggest account is in charges 1.02%, on top of the ERs which range from .45-1.5+. I'm so glad I found this forum, as well as Diehards!

Oh no, you've started another variable annuity thread.

[mickeyd]

Quote:

The variable annuity that the biggest account is in charges 1.02%, on top of the ERs which range from .45-1.5+.

Ouch...we feel your pain. Act quickly for fast relief.

[chinaco]

If an annuity is in a tax deferred account, are there any tax consequences? Or is an annuity viewed like any investment?


I am not familiar with a 403b... but if the rollover is a traditional IRA, the big difference may be in the features the program makes available to you. For example, a 401k has certain advantages over an IRA ( in terms of the tax code) about when you can withdraw the funds penalty free.

On the otherhand, if you mean you are going to roll to a Roth IRA... There are some tax implications also. Things get a little more complicated. The answer to your question depends on your tax rate now versus a projected tax rate when you begin using the funds. There are some other issues as well. Search the forum for Roth IRA... this topic has been discussed many times.