How to Get Out of a Bad 403(b) Plan
More and more K-12 educators are finding out that they are investing in high-fee, commission-based 403(b) plans that can significantly erode their retirement savings. You may have just discovered that your current 403(b) provider is costing you more than you believe it should, here’s how to make a change and work towards a better financial future.
Stay Calm and Educate Yourself
First, understand that you are not alone. Many educators are in the same situation due to a lack of education on retirement plans. Do not blame yourself; instead, take proactive steps to improve your situation.
Gather Information
Start by obtaining your district’s 403(b) vendor list from your benefits office. You can also find this information through your Third Party Administrator (TPA) or your Human Resources department in your school district. OMNI is a widely used TPA that allows you to search for your school district and locate your provider options. OMNI is a widely used TPA that allows you to search for your school district and locate your provider options.
Identify Low-Cost Vendors
Look for vendors known for offering low-cost investment options. These might include:
● Aspire
● Fidelity
● IPX
● Orion Portfolio Solutions
● Vanguard
If these are not available, consider other vendors that may offer low-cost options within their product range.
Advocate for Better Options
If no suitable options are available, use advocacy resources to lobby your employer to add at least one low-cost vendor. Also, check if a 457(b) plan is available as it might offer better features than a 403(b).
Open a New Account
Once you identify a low-cost vendor, consider opening an account with them. Contact the chosen company directly and gather information to determine if you want to establish your new account before making any changes.
Choose Your Investments
Decide on the investments through your chosen company. Utilize resources like asset allocation guides or free on-demand learning modules on investing basics.
Update Your Salary Reduction Agreement
Fill out a new Salary Reduction Agreement with your employer if you want to redirect your contributions to the new vendor. If you want to change vendors stop contributing to the old high-cost vendor.
Transfer Your Funds
If you decide you want to transfer your account, contact your old vendor to understand any fees associated with transferring your money. Ask if any of the funds can be moved penalty-free and when the remaining funds will be free of penalties. Fill out the necessary forms to transfer your funds. Be prepared for possible surrender charges and decide whether to move all funds at once or periodically as they become penalty-free.
Work with an Independent Investment Advisor
Consider working with an Independent Investment Advisor who is held to a Fiduciary standard and is well-versed in 403(b) retirement plans. These advisors can provide personalized advice and help you navigate your options to help you plan for your financial future. They can assist with all the steps above, from identifying low-cost vendors to transferring your funds and selecting suitable investments.
Celebrate
Celebrate your success in working towards a better retirement plan!
Consider a Roth IRA
If good 403(b) options are not available, a Roth IRA can be an alternative as it allows you to choose the vendor and typically offers lower fees and more flexibility. A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings
from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.
Tips:
● The new vendor should assist with the transfer process since it’s in their interest to gain your business.
● Don’t be too hard on yourself; many educators are not taught about these plans. Resources are available to help.
By following these steps, you can minimize the impact of high fees on your retirement savings and work towards a more secure financial future.
Disclaimer
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual.
Investing involves risk and you can lose principal.