Should I get out of my 403(b)?
I am a teacher and signed up for a 403(b) when I first started teaching 13 years ago. I did no research and did not realize that their were multiple companies affiliated with my school. I signed up for AXA (ModeratePlus Allocation) since they were the only ones to actively seek out new customers. Since then, I have taken $125 out of each bi-weekly pay check. That's $3,250/year and about $39,000 total. My total account value as of today is just under $43,000. Am I wrong to be upset about only $4,000 worth of gains over the past 12+ years? I'm no expert, but that seems ridiculously low. My question is not whether I should leave AXA or not, because I feel like that is a given, but instead whether I should roll over the $42K into another 403(b), an IRA, Roth IRA, or something else.
I'd have to agree with you. Though the period you are looking at includes the financial crisis, you started investing in the rebound years following the dot-com bubble which should have resulted in some great early returns. Proof of this is in the historical data for many other funds that had much better returns over the same period. You've actually received less than 2% annualized return assuming monthly compounding. I agree that moving from AXA to somewhere else should be a given. I'm not sure of your current employment status though, so depending on that- it's likely that your best option is to continue to invest in your 403(b), just with a different provider. This is because if you're still employed at the same school, you might not be able to close it or roll it over to an IRA just yet. Additionally, moving the money into a Roth IRA would also require not only a roll over, but a conversion which means taxation on the entire amount converted. If you are of age or if you have left the employment of that particular school, given the amount of money, it still might be best to leave it in a 403(b) or roll into your new employer's plan, as the case may be. Assuming you can move the money without penalty, the biggest deciding factor should be what your financial goals are, i.e. how you plan to utilize those particular funds in retirement.
Your question is timely. This article just came out yesterday and is almost exactly like your situation. I'd encourage you to give it a read.
The long and short of it is, you are likely being taken advantage of from a fee-perspective and this has likely had a huge impact on your low account growth.
As to whether you should roll to another 403(b), or an IRA, or even convert to a Roth IRA, there are multiple things to consider.
- There is creditor-protection on employer based plans that can become limited if rolled into an IRA. Probably not top-of-mind, but also not something that should be wholly ignored.
- Depending on your income and your other assets, you may want to consider converting a portion of those assets. You likely wouldn't want to convert all of it in one single year, as the conversion is considered taxable income. However, a phased-in conversion can and often times does make sense. If interested in this, I would encourage you to talk to a financial planner or tax advisor.
- Consider fees. Not all 403(b)'s are made equal and not all IRA's are made equal. Example, a compounded 1% decrease in return (via fees, for example) can result in a decrease of approximately 25% of actual dollars. Fees are inevitable, but also somewhat controllable. That isn't a message to find the least expensive investment option or least expensive investment advisor, but rather to make sure that the fees you are paying are actually justified.