The Advisor - December 2012


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Save More in Your 403(b) Plan by Avoiding High Fees

True or false? Participants in 403(b)plans – that means many educators likeyou – pay higher fees than private sector401(k) participants.

It’s true! A study by the U.S. Government Accountability Office indicates that 403(b)plan participants are more likely to investin products that have higher fees thantheir private-sector counterparts.*

Know Your Fees

The type of 403(b) product you purchase will determine the level and type of feesyou pay.There are three basic types of 403(b)plan products:

  • 403(b)(7) mutual fund custodial accounts. Mutual funds pool the money from many investors to buy shares ofstocks, bonds or other assets. The gainor loss in the mutual fund depends on the performance of the stocks and bondsit holds.
  • Variable annuities. Variable annuitiesare contracts with insurance companies.Investors choose from a pre-selected list of investments, called subaccounts,which are generally mutual funds. The gain or loss in the variable annuity depends on the performance of thesubaccounts. Variable annuities involveall the fees of mutual funds, plus insurance fees.
  • Fixed annuities. A fixed annuity isalso a contract with an insurancecompany, but in this case the insurance company guarantees a specific rate ofreturn for a specific period. In exchangefor the guarantee, returns tend to be relatively low.

Let’s take a look at the fees in each type of plan product.

* Source: U.S. Government Accountability Office,“Retirement Savings,” September 2009.

Annuities Offer No Additional Tax Benefit

The earnings in an annuity grow tax-deferred, but since your 403(b)or 457 plan is already tax-deferred, that feature of an annuity is of no additional benefit when you invest in one through your retirement plan.