Privacy Policy		What You Don't Know About 403(b)'s Can Cost You! Sometimes called a TDA, tax deferred annuity, TSA, tax sheltered annuity or 403(b) plan. It's the same thing: a powerful tool you can use to save tax deferred for retirement. 403(b) plans are used by employees of educational and tax exempt organizations (i.e. hospitals), much like a 401(k) is used in the private sector. Did you know that a 403(b) is not and does not have to be invested in an annuity contract? In fact 403(b) is nothing more than reference to a section of Federal Tax Code. As such, just like an IRA, the registration of 403(b) may be attached to fixed or variable annuity contracts, mutual funds, savings accounts and stock brokerage accounts. Generally speaking what type of investment you have access to is only limited by administrative policy implemented by your employer/plan sponsor. Look for example at a typical public school district. Check any school district payroll department and you can obtain a list of approved 403(b) providers, normally containing 10-30 companies. Access to other possible providers is usually limited due to administrative and/or computer limits imposed by the district. Otherwise any product legally filed to comply with section 403(b) tax provisions could be added. 403(b) Facts at a glance Funding is through per-tax salary deferral contributions. Participation is voluntary with no minimum participation required. Tax-treatment contributions grow tax-deferred until withdrawn, usually in retirement, after 59 ½ at which time withdrawals are taxed as ordinary income. Eligibility Generally open to all employees, full & part-time on date of hire. Vesting Immediate. Employee is always 100% vested in their own contributions and associated earnings. Loans Although permitted, not all employers and or product sponsors offer loans. Are you unhappy with your 403(b) sales representative or the product you invest in? You may change representative on most products by simply signing forms, obtained from the new representative, that are then filed with the product sponsor. In some cases you must write a letter of instruction to the company. Doing so authorizes the new representative to service your account but will in no way impact your investment or contractual provisions without your express permission. The representative of your choice can handle virtually every product, as long as he/she is licensed with that company. Tax law allows tax-free transfers of money from one company to another. This applies regardless of the type of product you currently have or want to transfer too. Beware, that your existent contract may impose deferred sales charges. If you are moving from one insurance company product to another your representative must complete New York Regulation 60 forms for your protection. Doing so will help demonstrate the economic benefit of making the change. Typical 403(b) funding options include these products. Flexible Premium Fixed Annuities Flexible premium annuities allow a client to make ongoing premium contributions into the contract, either on a fixed or periodic basis. The current credited interest rate is guaranteed for a specified period of time. Normally the contract also offers a minimum rate guarantee. Generally there are no sales charges. However, contracts typically contain surrender charges if the contract is cashed out within a specified number of years. The issuing insurance company guarantees your money from loss. Variable Annuities As its name implies, a variable annuity's rate of return is not stable, but varies with the stock, bond, and money market sub-accounts that you choose as investment options. Although variable annuities offer investment features similar in many respects to mutual funds, a typical variable annuity offers three basic features not commonly found in mutual funds: Tax-deferred treatment of earnings A death benefit; and Annuity payout options that can provide guaranteed income for life. Generally, variable annuities have two phases: The "accumulation" phase when investor contributions – premiums – are allocated among investment portfolios - sub-accounts - and earnings accumulate; and The "distribution" phase when you withdraw money, typically as a lump sum or through various annuity payment options. Investment returns and principle value of the available sub-account portfolios will fluctuate so that the value of an investor's unit, when redeemed, may be worth more or less than their original value. Variable annuities are sold by prospectus, which contains more complete information including all charges, expenses, risk factors and limitations. Investors should read the prospectus carefully before investing. Insurance companies issuing variable annuities provide a number of specific guarantees. For example, they may guarantee a death benefit or an annuity payout option that can provide income for life. These guarantees are only as good as the insurance company that gives them. While it is an uncommon occurrence that the insurance companies that back these guarantees are unable to meet their obligation, it happens. There are several credit rating agencies that rate a company's financial strength. Before you consider purchasing a variable annuity, make sure you fully understand all of its terms. Carefully read the prospectus. Here are several factors you should bear in mind before investing. Liquidity and Early Withdrawals Deferred variable annuities are long term investments. Getting out early can mean taking a loss. Many contracts assess surrender charges for withdrawals within a specified period, which can be as long as six to eight years. Sales and Surrender Charges Many variable annuities do not charge a front end sales charge, but they do impose asset based sales charges or surrender charges. These charges normally decline and eventually are eliminated the longer you hold your contract. Fees and Expenses Mortality and expense risk charges, which the insurance company charges for the insurance to cover guaranteed death benefits and annuity payout options. Administrative fees for record keeping. Underlying fund expenses, related to the investment sub-accounts. Annually fees on variable annuities can reach two percent or more of the annuity's value. Remember, you will pay for each variable annuity benefit. If you don't need or want these features, you should consider whether this is an appropriate investment for you. Taxation Withdrawals from a 403(b) are taxable as ordinary income. Withdrawals made prior to age 59 1/2 are also subject to a 10% IRS penalty tax. Investors should be cautioned that investing in a variable annuity within a tax-deferred account may not be appropriate as 403(b)'s are already tax-advantaged, a variable annuity will provide no additional tax savings. It will, however, increase expenses. Consult a competent tax advisor regarding the use of these products in your particular situation. Have You Already Purchased an Annuity? If you have recently purchased a fixed or variable annuity and now have second thoughts the policy may have a "free look" period that allows you to cancel within a specific period, typically 10-30 days. Read your contract for details. Mutual Funds A mutual fund is a company that pools the money of many investors, its shareholders, to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio, entitled to any profits when the securities are sold, but subject to any losses in value as well. The investment returns and principle value will fluctuate so that the value of an investor's shares, when redeemed, may be worth more or less then their original value. For the individual investor, mutual funds provide the benefit of having someone else manage your investments, take care of record keeping and diversify your dollars over many different securities that may not be available or affordable to you otherwise. A mutual fund by its very nature, is diversified, its assets are invested in many different securities. Beyond that, there are many different types of mutual funds with different objectives and levels of growth potential, furthering your chances to diversify. Because mutual funds have specific investment objectives such as growth of capital, safety of principal, current income or tax exempt income, you can select one fund or any number of different funds to help you meet your specific goals. In general mutual funds fall into three general categories: Equity funds invest in shares of common stocks. Fixed-Income funds invest in government or corporate securities. Balanced funds invest in a combination of both stocks and bonds. Understanding Mutual Fund Fees and Expenses By learning the types of fees associated with mutual funds, you will be better able to make the right investment choices for you. However, fees are only one element in the investment selection process. Sales Charges Direct-marketed mutual funds are sold directly to you without a broker or sales person. These are typically referred to as no-load funds, with no sales fees or loads deducted from your purchase. When purchasing no-load funds you must do all of your own research and selection process. Once completed you call an 800 number to place your purchase. Share Classes of Mutual Funds Costs associated with the purchase and sale of other mutual funds sold with a broker or sales person assistance are defined in specific terms, depending on the type, or class, of fund you choose and how you purchase it. Which share class you purchase will depend on how much you are going to invest and how long you will leave it in the fund. Here are the basic definitions of each share class. A Shares: Typically called load funds and offered through brokers, these funds are sold with an initial, or front-end sales charge (usually 2-6%) that is deducted from your initial investment. Also, these funds most always carry a 12b-1 marketing fee (on average, around .25%) which is deducted from the fund's assets each year. B Shares: These funds have no front-end sales charge, but carry a redemption fee, or back end-load that you pay if you redeem shares within a certain number of years. This load (called a CDSC or contingent deferred sales charge) declines annually until it disappears normally in about six years. These funds carry a 12b-1 marketing fee which is higher than A shares. Many funds reduce the 12b-1 fee to the same charged in A shares once there is no longer a CDSC on the shares. C Shares: Known as level-load shares, C shares typically have no up-front sales charge or redemption charge, but carry a higher 12b-1 marketing fee that never reduces. Obtain a prospectus, which contains more complete information on the risks, charges and expenses of investing. Read it carefully before making any investment decisions. Risk vs. Reward Before you can begin to build a successful investment portfolio, you should understand the basic elements of mutual fund/variable annuity investing and how they can affect the potential value of your investments over the years. When you invest in mutual funds/variable annuities, there is no guarantee that you will end up with more money when you withdraw your investment than you put in to begin with -- and that's a scary prospect. Loss of value in your investment is what is considered risk in investing. Even so, the opportunity for investment growth that is possible through investments in mutual funds/variable annuities far exceeds that concern for most investors. Consider why. At the cornerstone of investing is the basic principal that the greater the risk you take, the greater the potential reward. Or stated another way, you get what you pay for and you get paid a higher return only when you're willing to accept more volatility. Risk then, refers to the volatility -- the up and down activity in the markets and individual issues that occurs constantly over time. This volatility can be caused by a number of factors -- interest rate changes, inflation or general economic conditions. It is this variability, uncertainty and potential for loss, that causes investors to worry. We all fear the possibility that a stock or bond we invest in will fall substantially. But it is this very volatility in stocks, bonds and their markets that is the exact reason that you can expect to earn a higher long-term return from these investments than you can from CDs and passbook savings accounts. Different types of mutual funds have different levels of volatility or potential price change, and those with the greater chance of losing value are also the funds that can produce the greater returns for you over time. So risk has two sides: it causes the value of your investments to fluctuate, but it is precisely the reason you can expect to earn higher returns. You might find it helpful to remember that all financial investments will fluctuate. There are very few perfectly safe havens and those simply don't pay enough to beat inflation over the long run. How can your Credit Union financial services representative help you? Whether you have just started saving or have already accumulated a nest egg and wish to improve the returns on current investments, I can help. I'm here to assist you: Identify your needs and goals Analyze your current financial situation Show you how to integrate employer benefits into your plan Customize a plan for you Evaluate options, providers and products to suite you Track your progress. Call today for a free evaluation. Let me help you achieve your goals. Securities offered through Cadaret Grant & Co., Inc. Member NASD/SIPC, PPG and CG are separate entities. Securities and/or insurance products not insured by FDIC/NCUA or any government agency. May lose value. Not a deposit of or guaranteed by any bank, credit union or any affiliates. Licensed in AZ, CA, CO, CT, GA, ID, MA, ME, NC, NH, NJ, NY, PA, VA, VT and WY.