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Friday, November 25, 2016

Visiting the Ghost of Investing Past

One of the things I'm most proud of is getting out of my terrible 403(b) plan. Two years ago I started a Roth IRA with Betterment and this past may I started getting involved in Dividend Growth Investing. I can't believe how liberating it has been to get away from the fee pit of the 403(b) plan and take control of my own financial future. However, from time to time I'm still haunted by the ghost of investing past.

I have $13,500 sitting in an account with high fees, (including a random $30 annual fee for having a balance of less than 25k.) The problem is I can't get the money out unless I change jobs and am lucky enough to land in a place where the 403(b) vendor isn't a provider. Unfortunately it seems this particular high fee mutual fund vendor is in a lot of places.

If I try and withdraw the money I get hit with regular taxes, plus 10 percent early withdrawal, plus surrender fees. But the alternative is to continue to pay high fees for decades which is also not desirable.

So the way I see it I have three options. Unless I change school districts to one that doesn't use the 403b vendor.

1. The nuclear option early withdrawal and all the penalties. But the money would then be mine and I'd be rid of the high fees going forward. (Not a good choice)
2. Wait out the surrender fees. I believe I have another 5 years. Take the tax hit and withdraw the funds.
3. Wait until I'm 59.5 or retirement and rollover the money then into an IRA.

So the question then becomes does letting the money grow tax free and avoiding 10 percent penalty worth it? If I leave the money where it is I pay a 1 percent fee. But then all the average funds my money is invested in also have fees. My guess is my total cost is between 2.5-3 percent. But that is just based on what I've heard most insurance companies charge. I don't exactly know, because the company doesn't make it obvious what each fund charges in fees.

Has anyone else been in a similar situation? I guess the positive is that I know they aren't getting any more of my money.


  1. Seedling,

    Are you sure you'd have to pay a surrender fee? I ask 'cause I was in a similar situation with a 403(b). Since the product I owned was a TSA, I opted to pay the one time penalty of $600 or so to get out my 15k. At the time, I just wanted out of the contract and I thought it was worth it. 5 years later, that money was the basis of my current portfolio.

    If you'd get hit with an income tax, that's a different story. In my case, I thought it was worth it to have the control over my money and I didn't want to wait the 6 years needed that were spelled out in my situaiton.

    good luck!

    1. You bring up an excellent point. If I could roll it into an IRA and only be on the hook for the surrender fees that might make sense. The account has been open 11 years and I haven't contributed in more than a year. Thanks.

  2. After doing some more research I think the only option would be to withdraw the funds, which would mean taxes and surrender fees. That is unless I change jobs.


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