Really bad 403(b) options- when is it not worth it?

[Reddleman]

I've never liked our possible providers in my school district, and am currently working on trying to get a Vanguard or t least Fidelity or Creff as options.

Basically we are limited to tax sheltered annuities through one insurance company or another, so when I stated contributingi picked AXA.  After contributing for a few years I wondered why my returns were so mediocre, so here's what I found so far:

Fund cost vary, mostly between 1-2% annually (bad)
Even their limited index options are hovering between .8 and 1.2. %
They tack on 1.2% a year fees for "longevity costs"
There is a withdrawal penalty of 5% for all transfers that have not been in the account for 5 years.

There may be even more, but they make it almost impossible for an average human to find the true fees associated.

So I can continue to contribute, as well as max out our roths every year, but it really annoys me!

I was planning on posting with more complete financial information, but I'm not sure if this is the best musician forum for that.

[Catbert]

I think whether it's worth it is also impacted by:

*Whether there a match?  Free money might make it worth it.

*Whether you'll be leaving this employer in a few years?  If yes, you could then roll to an IRA with more choices.

*Your tax bracket?  Also if this income was back on your tax return would you be forgoing any other deductions? 15% or less marginal bracket would be a plus for investing outside the 403b while 25% or more could make the 403b worth it even with crappy options.

All this assumes 403Bs work like 401Ks with regard to taxes and conversions to IRAs.

[wtjbatman]

I was planning on posting with more complete financial information, but I'm not sure if this is the best musician forum for that.

Hopefully the advice here will be like music to your ears.

[Another Reader]

Max out all the other tax deferred and tax free vehicles available to you.  Get together with some like minded tenured folk and write pointed letters to the District admin and the school board.  You have an annuity, it's called a pension.  You would like the option of owning bona fide investments as well, please.

[Reddleman]

Thanks for the comments.  For clarification:

Because of our combined income we are out of the 15% bracket but still eligible for Roths, so we max those out every year.  I don't think I have any other tax advantaged accounts I can use, but let me know if I'm wrong about this.

We max out my wife's 403(b)- she works elsewhere and actually can invest in low fee funds.

Had to laugh about the employer match- do any school districts actually do that?  Oddly enough my wife's non-profit does!  No free money on the table on my side.

And I only have 5 years left before I can conceivably retire from teaching and expect a reasonable pension eventually, so I may remain with the same employer until then.  I suppose I could continue to contribute, but that 5% withdrawal fee at the end is a killer! 

I guess I shouldn't be whining that I'm able to save enough that I run out of good tax-advantaged places to put it.  I just hate the idea that depending on the market a huge part of my projected growth in the next 5 years or so will be wiped out by fees!