Should I convert my 403(b) account to a traditional IRA?
I am 64 years old and just retired. I have a 403(b) from my education career. My advisor is suggesting that I convert the 403(b) to a traditional IRA account with an annuity company. I understand that I would have to always ask my third party if I wanted to withdraw from my 403(b). With the IRA it is more controlled by me. Is this good advice? There are no fees associated with the IRA.
Congratulations on your Retirement and thank you for serving through Education.
While there is good reason to move your 403(b) to an IRA, I would use caution in moving ALL of it to an annuity company. There are several types of Annuities and several more annuity companies. All come with different bells and whistles. I am in favor of moving your money away from the 403(b). I am not yet sold on the idea of moving it to an annuity company.
Lets dig deeper.
Most annuities are like a Swiss Army knife, they do many different things. Unfortunately, many don't do anything one thing very well. Moreover, Insurance "Fat Cats" make a big commission and often push the product that best benefits their pockets with little to no regards to your solution. Lets focus on your solution...
Define Your monies "Clarity of Purpose"
Ask your self, what is the money for?
In choosing what to do with your money I suggest defining a clarity of purpose of your money. Most people who ask "should I convert my 403b account to a traditional IRA" are often looking for clarity on income planning or solving for the income gap.
Ask your self, "what am I solving for?" It is likely one of the three.
- Solving for the Income Gap
- Solving for Growth
- Solving for Legacy
If you are solving for the income gap, you can use the best annuities or fixed income solutions out there that give you the most income with the lowest amount of money to guarantee your income need. You may find that the best income annuities may have no fees, or reasonable fees that make the benefit worth while. Some annuities pay no commission and are a Flat Fee of $250 annually regardless of your balance.
How To Best Solve for the Income Gap
Define your Annual Income Goal (AIG):
Subtract your Guaranteed Annual Income (GAI)
(i.e. Social Security, Government Pension, other income):
The formula looks like this: AIG - GAI = Retirement Income Gap
for example, you need $100,000 in retirement and your Guaranteed Annual income is $75,000...
$100,000 - $75,000 = a Gap of $25,000
You are solving for an income solution of $25,000 and are best to do this with the least amount of your retirement money.
With love and regards,
Jose Sanchez, CFP®
I was going to go easy on what I assume is an annuity salesman- but if he told you there are no fees associated with the IRA- RUN and RUN FAST. They are either lying, uniformed, or you can in some type of fixed annuity- that technically doesn't have a fee, but will pay you a low amount of interest on your money.
Look for a fee only certified financial planner to help you make the best decision with your retirement funds. It doesn't really matter to me (or to you for that matter) whether the money is in a 403b or and IRA. Taxation of withdrawals will be the same. What matters is what you are using to fund the account- some annuity with hidden fees/cost? Mutual Funds? ETFS?
At the very least ask your "adviser" - if they are working in a fiduciary and how they get paid. If they aren't acting as a fiduciary- move on. You deserve better. If they don't say how they get paid- move on, they are likely being dishonest with you.
First off, congratulations on your retirement!
While there are some unknown moving parts here, I can speak to the pros and cons of rolling over a 403(b) to an IRA in general terms.
Yes, you will likely have more control (of your money) and options (surrounding your investments) by moving these funds to an IRA. This will largestly depending on the custodian/provider of the IRA. If you go with a notoriously low-cost provider (think Vanguard or Fidelity), you will also have access to funds that could have much lower management fees. All of this combined can be a boon to the long term growth prospects for your portfolio.
Keep in mind that by moving these funds to an IRA, the advisor you are working with also has more control of your funds and could potentially place you into expensive products. Annuities have many benefits but they usually do come with higher fees (and commissions for the advisor). Make sure you understand (thoroughly) how the annuity operates and if it is indeed proper for your situation.
Best of luck! I hope you enjoy this newfound time away from the workforce.
First things first: HELL NO! Do NOT buy an annuity. Unless you are mad at your money and in love with your advisor (who stands to make a lot of money on commission) you should stay away from annuities.
Second: yes, you should move your 403(b) to a rollover IRA, but only after you have fired the advisor who is recommending an annuity! Find a fiduciary to work with, someone who is looking out for your best interests. And not a "salesperson" who is working for a commission.
Someone trying to get you to move money from a 403(b) to an IRA annuity is very likely motivated by the commission he will earn, not what's best for you. An IRA annuity will almost always be much more expensive than your 403(b) and have restrictions on when you can access the money and sometimes annual limits. Look very carefully at the product being proposed and get really specific answers to your questions about fees. If you don't feel comfortable or that you understand the product fully, or if it sounds too good to be true, walk away.
You do not have to make a decision on what to do with your 403(b) right when you retire. There is plenty of time to do your research and not feel pressured or rushed.