Author Topic: 403(b) "Annuities"  (Read 2144 times)


  • Handlebar Stache
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403(b) "Annuities"
« on: September 05, 2017, 06:49:15 PM »
I've posted this question on Bogleheads, but haven't gotten much in the way of response and wondered if maybe somebody here has some insights, given the negative connotation of the word "annuities."

Iím 58 years old and employed by the SUNY System. I participate in the optional retirement system through TIAA. Employees also have the option to participate in one or both of two types of Voluntary Savings Plans, a 457(b) and a 403(b) Tax Deferred Annuity Program. I should be able to contribute up to $24,000 annually to each, as I am over 50. DH, also over 50, contributes less than half his maximum to a 403(b) through his employer (a school system) and will get a modest pension when he retires. We plan to both retire in 3-5 years, and have a little over $1M in retirement accounts.

Iíve been maxing out contributions to The New York State Deferred Compensation Plan 457(b). Theyíve had decent low-cost options and Iíve been largely satisfied with it.

Weíve recently inherited some funds (about $400K) and am thinking about whether it makes sense to also max out contribution to the SUNY Voluntary 403(b) Tax-Deferred Annuity Program. I am not a horribly sophisticated investor. I understand that in general, annuities arenít a good idea, so this concerns me.

Further complicating the situation is that I have a kid who will be going to the SUNY system for college next year. If we were to max out all three deferred compensation accounts (dhís 403(b), my 457(b) and my 403(b) tax-deferred annuity, a combined total of $72,000), we should be able to get our AGI under the threshold to qualify for the stateís free tuition program for at least my daughterís last two years of college.

So, Iím looking at the 403(b) annuity options and as this is totally unfamiliar territory for me, Iím sort of paralyzed.

The providers all list mutual funds, which confuses me. I donít understand how investing in, say the FID 500 Index PR, a relatively low cost index fund, is an annuity? I suspect thatís the best option as a fund, but I have a nagging feeling itís not as simple as buying a fund.  There's a supposedly a link that compares expenses, but it doesn't work.  Our campus HR isn't particularly helpful for this kind of thing.

The VALIC funds all have steep expense ratios and the link to the VOYA funds is broken.

The TIAA site links to a quarterly investment update file with a lot of fine print about fees thatís impenetrable to me. TIAA has TIAA Traditional Annuity which might be an OK option at a guaranteed 3% but which could be higher. Our overall portfolio is pretty heavily weighted toward equities, and putting some funds in this might not be a terrible thing.

If anyone has any thoughts Iíd appreciate it.


  • Bristles
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Re: 403(b) "Annuities"
« Reply #1 on: September 05, 2017, 07:11:26 PM »
I'm pretty sure "tax deferred annuity plan" or "tax-sheltered annuity plan" is simply the formal name given to section 403(b) of the tax code. It doesn't necessarily mean you have to purchase an actual annuity contract. Most 403(b) plans also allow for "regular" mutual fund investment accounts as well. After skimming through the SUNY link you posted, if it were me, I'd go with the Fidelity mutual fund investment option, and choose between their total stock market index fund or one of their "Fidelity Freedom Index Funds" which are their target date funds. Note there is an important difference between "Freedom Funds" (actively managed) and "Freedom Index Funds" (passively managed).

Laura Ingalls

  • Stubble
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Re: 403(b) "Annuities"
« Reply #2 on: September 05, 2017, 07:16:09 PM »
+1 to Nothlit's discription and to the fact that fidelity is a provider. 

Your plan to use your inheritance funds to cash flow life so you can max out the 403b also sounds like an idea with merit too.

Secretly Saving

  • Bristles
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Re: 403(b) "Annuities"
« Reply #3 on: September 05, 2017, 07:19:33 PM »
I second what the previous said.  Go with Fidelity.  Take as much advantage of tax deferred 403b options as you can and run with it.