Early Withdrawal of Fixed Indexed Annuities?

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Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

Hello Bogleheads,

I just found that my girlfriend's Roth 403b is invested in a Fixed Indexed Annuity (FIA). I had never heard of this type of account before yesterday, but the little research I've done makes these seem like very bad investments. Luckily, she has not contributed much too the account, $7000 in total. Over this 28 month period, the account has earned $113 in gains. When I initially looked at the account, I thought it was okay because it said the account was 100% in the S&P 500. The capitalization rate for future contributions is 1.10% and the participation rate is 100%. All in all, this looks like a scam that preys on people that don't know better. I'm unsure of what to do. She cannot quit her job due to immigration reasons, so there's no chance in rolling it into a Roth IRA anytime soon. It kinda sucks, but I'm thinking the best path forward is to stop all future contributions, withdrawal all of the money, pay the 10% IRA penalty, pay the surrender charge, contribute whatever is left into a Roth IRA (she has the earned income to do this). To show a little bit of math, the current account balance $7113 and after the surrender charge, $6650. I think she'll be left with approximately $5950. What would you do in my position? I feel really bad that she'll have to "lose" $1000 but I'm happy that we're catching this now.

Thanks,
Justin
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by livesoft »

I would just consider it a "bond fund" and not withdraw it. I also do not believe she is stuck in it forever, so there will be an opportunity to change it. That is, I do not believe the facts are as you stated them.

She can contribute to a Roth IRA in addition to her Roth 403(b) if she has the financial resources to do so.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by Stinky »

4a757374696e wrote: Sat Jan 30, 2021 12:31 pm Hello Bogleheads,

I just found that my girlfriend's Roth 403b is invested in a Fixed Indexed Annuity (FIA). I had never heard of this type of account before yesterday, but the little research I've done makes these seem like very bad investments. Luckily, she has not contributed much too the account, $7000 in total. Over this 28 month period, the account has earned $113 in gains. When I initially looked at the account, I thought it was okay because it said the account was 100% in the S&P 500. The capitalization rate for future contributions is 1.10% and the participation rate is 100%. All in all, this looks like a scam that preys on people that don't know better. I'm unsure of what to do. She cannot quit her job due to immigration reasons, so there's no chance in rolling it into a Roth IRA anytime soon. It kinda sucks, but I'm thinking the best path forward is to stop all future contributions, withdrawal all of the money, pay the 10% IRA penalty, pay the surrender charge, contribute whatever is left into a Roth IRA (she has the earned income to do this). To show a little bit of math, the current account balance $7113 and after the surrender charge, $6650. I think she'll be left with approximately $5950. What would you do in my position? I feel really bad that she'll have to "lose" $1000 but I'm happy that we're catching this now.

Thanks,
Justin
First, you’re right to be concerned that she bought a fixed indexed annuity inside her 403b. I’m sure she didn’t fully understand what she was being sold. As you can see from numerous other threads on this Forum, FIAs are always a bad idea.

Does she even have the option of rolling her 403b into an IRA right now? If she’s still employed, I doubt that she does, but I could be wrong.

Presuming that she can’t roll out right now, what other investment options are available in the 403b? Hopefully there’s a low cost index fund (or funds).

I would suggest that she surrender the fixed indexed annuity right now, and roll into the best available option in the 403b plan. Thankfully, she hasn’t put so much money into the annuity that it’s a big loss.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by livesoft »

Stinky wrote: Sat Jan 30, 2021 12:39 pmFirst, you’re right to be concerned that she bought a fixed indexed annuity inside her 403b. I’m sure she didn’t fully understand what she was being sold. As you can see from numerous other threads on this Forum, FIAs are always a bad idea.
The TIAA Traditional Annuity which quite of lot of posters use (me included) in their 403(b), can be considered to be a fixed income annuity for all intents and purposes.

Also, a stable value fund available in a 403(b) would also be similar to a fixed income annuity.

I would say we need to know more about this particular Roth 403(b) and its options before jumping too far to conclusions.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

livesoft wrote: Sat Jan 30, 2021 12:38 pm I would just consider it a "bond fund" and not withdraw it. I also do not believe she is stuck in it forever, so there will be an opportunity to change it. That is, I do not believe the facts are as you stated them.
Hey livesoft. I thought about treating the account like bonds too. But we're both quite young (in our 20s). This currently the only "investment" account she has, it would be like having 100% bonds. Yes, there will be an opportunity to change it, but that could be 30+ years from now.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by livesoft »

4a757374696e wrote: Sat Jan 30, 2021 12:46 pmYes, there will be an opportunity to change it, but that could be 30+ years from now.
Sure, change it, but I do not think this investment cannot be changed well before 30+ years from now. And I also think it can be changed without penalty fairly soon. Basically, I think you should post a link to the employer, the employer's 403(b) site, and whatever else that we can look at in order to understand what is going on. It is not that I don't trust your explanation, but I don't trust your explanation.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

livesoft wrote: Sat Jan 30, 2021 12:42 pm I would say we need to know more about this particular Roth 403(b) and its options before jumping too far to conclusions.
What would you like to know? The provider is National Life Group. I have a list of questions I'm going to email the advisor (salesperson) today but I'm not expecting a response until early next week. My main question is if there are any non-FIA options. To make changes to the account, we'll have to fill out a paper form and mail it to them. The form lists a few other investment options, but I suspect they are all FIA too.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by Stinky »

4a757374696e wrote: Sat Jan 30, 2021 12:46 pm
livesoft wrote: Sat Jan 30, 2021 12:38 pm I would just consider it a "bond fund" and not withdraw it. I also do not believe she is stuck in it forever, so there will be an opportunity to change it. That is, I do not believe the facts are as you stated them.
Hey livesoft. I thought about treating the account like bonds too. But we're both quite young (in our 20s). This currently the only "investment" account she has, it would be like having 100% bonds. Yes, there will be an opportunity to change it, but that could be 30+ years from now.
Is this, in fact, a “fixed indexed annuity”? If so, it will likely perform inferior to a real bond fund. If you do choose to keep a fixed indexed annuity, at least don’t put any more contributions into it.

If it is another type of annuity, or a stable value fund, it may well be worth keeping
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

livesoft wrote: Sat Jan 30, 2021 12:50 pm
4a757374696e wrote: Sat Jan 30, 2021 12:46 pmYes, there will be an opportunity to change it, but that could be 30+ years from now.
Sure, change it, but I do not think this investment cannot be changed well before 30+ years from now. And I also think it can be changed without penalty fairly soon. Basically, I think you should post a link to the employer, the employer's 403(b) site, and whatever else that we can look at in order to understand what is going on. It is not that I don't trust your explanation, but I don't trust your explanation.
Ah, I'm catching your drift now. Sorry, I didn't know that marriage was a qualified life event. If it happens, that could be a few years away, but it's a solid option. Thanks for letting me know.

Edit: I'm actually not so sure of this. Can you explain what you mean?
Last edited by 4a757374696e on Sat Jan 30, 2021 1:04 pm, edited 1 time in total.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by livesoft »

I didn't mention anything about marriage. Where did that come from? ???

I am helping a school teacher get their 403(b) going. The school system has about 20 different insurance providers all with terrible options, but buried in the choices is the 21st provider: Vanguard. A mere mortal would not know what to do with all the various craptacular plans presented and would likely go, "Ugh!" and throw up their hands and do whatever the first "helpful" insurance sales rep in the faculty lounge told them to do.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

livesoft wrote: Sat Jan 30, 2021 1:04 pm I didn't mention anything about marriage. Where did that come from? ???
Sorry! You weren't clear so I had to assume what you were talking about. I'm not even sure if that's a qualified life event anymore. Is it?
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

Stinky wrote: Sat Jan 30, 2021 12:56 pm
4a757374696e wrote: Sat Jan 30, 2021 12:46 pm
livesoft wrote: Sat Jan 30, 2021 12:38 pm I would just consider it a "bond fund" and not withdraw it. I also do not believe she is stuck in it forever, so there will be an opportunity to change it. That is, I do not believe the facts are as you stated them.
Hey livesoft. I thought about treating the account like bonds too. But we're both quite young (in our 20s). This currently the only "investment" account she has, it would be like having 100% bonds. Yes, there will be an opportunity to change it, but that could be 30+ years from now.
Is this, in fact, a “fixed indexed annuity”? If so, it will likely perform inferior to a real bond fund. If you do choose to keep a fixed indexed annuity, at least don’t put any more contributions into it.

If it is another type of annuity, or a stable value fund, it may well be worth keeping
I'm almost certain it is a FIA. Thank you. I will stop contributions and help her consider other available options.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

livesoft wrote: Sat Jan 30, 2021 1:04 pm I am helping a school teacher get their 403(b) going. The school system has about 20 different insurance providers all with terrible options, but buried in the choices is the 21st provider: Vanguard. A mere mortal would not know what to do with all the various craptacular plans presented and would likely go, "Ugh!" and throw up their hands and do whatever the first "helpful" insurance sales rep in the faculty lounge told them to do.
That is the situation my girlfriend is in. To provide some more details, because someone might be able to help, she works for the Austin Independent School District (AISD). Everything seems to be centered around Texas Retirement Services (TRS). Where can I find a list of 403b providers? On their website [1] they say:
As of September 1, 2019, TRS no longer certifies 403(b) companies nor maintains a list of registered 403(b) investment products. This change is pursuant to legislation that was adopted by the Texas Legislature in May 2019. Read the text of House Bill 2820.
I have no idea where to find this information. She doesn't know either.

[1] https://www.trs.texas.gov/Pages/403b_active_member.aspx
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by Stinky »

4a757374696e wrote: Sat Jan 30, 2021 1:18 pm
livesoft wrote: Sat Jan 30, 2021 1:04 pm I am helping a school teacher get their 403(b) going. The school system has about 20 different insurance providers all with terrible options, but buried in the choices is the 21st provider: Vanguard. A mere mortal would not know what to do with all the various craptacular plans presented and would likely go, "Ugh!" and throw up their hands and do whatever the first "helpful" insurance sales rep in the faculty lounge told them to do.
That is the situation my girlfriend is in. To provide some more details, because someone might be able to help, she works for the Austin Independent School District (AISD). Everything seems to be centered around Texas Retirement Services (TRS). Where can I find a list of 403b providers? On their website [1] they say:
As of September 1, 2019, TRS no longer certifies 403(b) companies nor maintains a list of registered 403(b) investment products. This change is pursuant to legislation that was adopted by the Texas Legislature in May 2019. Read the text of House Bill 2820.
I have no idea where to find this information. She doesn't know either.

[1] https://www.trs.texas.gov/Pages/403b_active_member.aspx
It looks like she needs to talk to her school system. From the website that you linked to:

Questions?

Members – Contact the HR department at your school district or charter school
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

Stinky wrote: Sat Jan 30, 2021 1:21 pm
4a757374696e wrote: Sat Jan 30, 2021 1:18 pm
livesoft wrote: Sat Jan 30, 2021 1:04 pm I am helping a school teacher get their 403(b) going. The school system has about 20 different insurance providers all with terrible options, but buried in the choices is the 21st provider: Vanguard. A mere mortal would not know what to do with all the various craptacular plans presented and would likely go, "Ugh!" and throw up their hands and do whatever the first "helpful" insurance sales rep in the faculty lounge told them to do.
That is the situation my girlfriend is in. To provide some more details, because someone might be able to help, she works for the Austin Independent School District (AISD). Everything seems to be centered around Texas Retirement Services (TRS). Where can I find a list of 403b providers? On their website [1] they say:
As of September 1, 2019, TRS no longer certifies 403(b) companies nor maintains a list of registered 403(b) investment products. This change is pursuant to legislation that was adopted by the Texas Legislature in May 2019. Read the text of House Bill 2820.
I have no idea where to find this information. She doesn't know either.

[1] https://www.trs.texas.gov/Pages/403b_active_member.aspx
It looks like she needs to talk to her school system. From the website that you linked to:

Questions?

Members – Contact the HR department at your school district or charter school
Thanks. With that advice, I think I actually just found it. The Austin ISD 2021 benefits handbook lists TCG Services [1] for 403b and 457 plans. They have a list of "vendors" [2] for Austin ISD, which is exactly what I was looking for. There seems to be a bunch of options, like Vanguard and Fidelity :D

[1] https://tcgservices.com
[1] https://tcgservices.com/documents/#/sea ... ved-vendor
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by livesoft »

4a757374696e wrote: Sat Jan 30, 2021 1:18 pm
As of September 1, 2019, TRS no longer certifies 403(b) companies nor maintains a list of registered 403(b) investment products. This change is pursuant to legislation that was adopted by the Texas Legislature in May 2019. Read the text of House Bill 2820.
I have no idea where to find this information. She doesn't know either.
I am not surprised. Our local Texas Legislature rep is an annuity salesrep. I would not be surprised if many of the state legislators have backgrounds as high-fee scumbags financial sales reps.

Anyways, the school teacher I am helping works for an ISD that has hidden their 403(b) providers.

But check this out:
Click here: https://www.vanguard403bservices.com/co ... n/vanguard
Then click on the "Select your employer..." drop-down menu and type "Austin"
Then select "Austin ISD"

Image


The only thing that remains is how to figure this out from the AISD side of things.
For the person I am helping, there is a form to move existing 403(b) money held at one provider to another provider.
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Re: Early Withdrawal of Fixed Indexed Annuities?

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4a757374696e wrote: Sat Jan 30, 2021 1:32 pm The Austin ISD 2021 benefits handbook lists TCG Services [1] for 403b and 457 plans. They have a list of "vendors" [2] for Austin ISD, which is exactly what I was looking for. There seems to be a bunch of options, like Vanguard and Fidelity :D

[1] https://tcgservices.com
[1] https://tcgservices.com/documents/#/sea ... ved-vendor
Vanguard and Fidelity are the only two options that I would consider.

Boy, there sure are a lot of life insurance companies on that list!
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by livesoft »

Stinky wrote: Sat Jan 30, 2021 2:03 pmBoy, there sure are a lot of life insurance companies on that list!
Probably one for every different Texas State legislator. :twisted:
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

Livesoft & Stinky:

Thanks for your help. I'll keep y'all up-to-date. We've stopped contributions to National Life Group and redirected them to Fidelity. On Monday, we're going to call TCG and ask if we can do an "Exchange/Transfer Inside Plan." The distribution form [1] has an option for it. If that fails, we'll contact National Life Group and inquire about other types of accounts (non-FIA). If none are good, we will withdrawal the funds and pay the penalty.

TCG says this about exchanges:

Image
Source: https://tcgservices.com/documents/#/search-forms/ausisd

And it says these companies (vendors) allow exchanges:

Image
Source: https://tcgservices.com/documents/#/sea ... gion13/spd

But I cannot find this appendix I list. I'm not sure what they are referring to.

[1] https://universal-doclib181424-dev.s3.a ... mplate.pdf
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Re: Early Withdrawal of Fixed Indexed Annuities?

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4a757374696e wrote: Sat Jan 30, 2021 3:56 pm Livesoft & Stinky:

Thanks for your help. I'll keep y'all up-to-date. We've stopped contributions to National Life Group and redirected them to Fidelity. On Monday, we're going to call TCG and ask if we can do an "Exchange/Transfer Inside Plan." The distribution form [1] has an option for it. If that fails, we'll contact National Life Group and inquire about other types of accounts (non-FIA). If none are good, we will withdrawal the funds and pay the penalty.

TCG says this about exchanges:

Image
Source: https://tcgservices.com/documents/#/search-forms/ausisd

And it says these companies (vendors) allow exchanges:

Image
Source: https://tcgservices.com/documents/#/sea ... gion13/spd

But I cannot find this appendix I list. I'm not sure what they are referring to.

[1] https://universal-doclib181424-dev.s3.a ... mplate.pdf
This all sounds like a good move.

You’re unlikely to find anything attractive to transfer into at National Life, but no harm in asking. Also, I don’t know why National Life would not allow a surrender and transfer of process to Fidelity.

Please post back when you’ve got this finished up. You’re making some good moves for your girlfriends long term financial health.
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Re: Early Withdrawal of Fixed Indexed Annuities?

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Please post back when you’ve got this finished up. You’re making some good moves for your girlfriends long term financial health.
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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by Broken Man 1999 »

I reworked a friend's TIAA accounts. She is an employee of a university, her second university position.

The friendly folks had her in at least 15 funds in each of her four accounts. Two accounts had 17 different funds. Overlaps galore. :shock:

Now she has one fund in each account. I did have to wade through a lot of stuff to find good funds for her. But, now she is in index funds, all low expense from Vanguard, and a couple of Target Retirement Date funds, not from Vanguard, but actually with reasonable ERs.

Shameful, but not rare.

Good grief, what a chore! To add insult to injury, she ended up in the mess due to her "free" advice provided by some advisor slimeball.

It seems this type of investing is rampant in education, at all levels.

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Re: Early Withdrawal of Fixed Indexed Annuities?

Post by 4a757374696e »

Alright! I'm excited to give you guys the good news. The money was successfully exchanged to Fidelity today! This was such a long and overly complicated process. It took many emails, some faxing of papers, and several phone calls to both National Life and Fidelity. I can go through it in more detail in y'all want. It took a little over three months from start to finish. Whew.
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Re: Early Withdrawal of Fixed Indexed Annuities?

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4a757374696e wrote: Fri May 07, 2021 6:20 pm Alright! I'm excited to give you guys the good news. The money was successfully exchanged to Fidelity today! This was such a long and overly complicated process. It took many emails, some faxing of papers, and several phone calls to both National Life and Fidelity. I can go through it in more detail in y'all want. It took a little over three months from start to finish. Whew.
Congratulations on completing this long arduous journey! You should feel a sense of accomplishment for persevering to the end.

Your girlfriend did the right thing in ceasing new contributions to National Life, and then rolling to Fidelity. And you are to be commended for helping her through the process.

Best wishes to you.
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