Rick, Massachusetts, Three Day discussed on Ric Edelman

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W. FTL we're taking telephone calls here on the record holding show off the Framingham Massachusetts batteries with us on the program I'm fine Rick how are you doing great thank you so much how can I help great thanks for taking my call first off and I just wanna say I'm not long term listener really appreciate everything you do I really learned a lot by international well thank you I appreciate that what can I do for you today well I'm calling because my wife recently started a new job and she's eligible for a for a three peat plan and I was looking into it and I guess the sponsors T. I. a crap and there's only like ten options for everyone the best and they're all I knew the mixture of a variable or fixed annuity yeah and I'm used to getting low cost index funds the wondering if it's worth putting money into this for three D. or if I should just take that money I would have invested there and put it into our our brokerage account which lasted then does does your wife's employer provide a matching contribution I do not that's stinks okay so here's the deal I'm going to tell you that if you want to do what you just described I won't object and that's very unusual for me to say that regarding the topic we're discussing here so let me bring everyone up to speed when you work for an employer the often offer a retirement plan if you work in the for profit world the retirement plan and most commonly is a four oh one K. plan but in the nonprofit world the school system's hospitals as well as charities they don't use a four oh one K. they use a for a three day which is so your wife working for hospital school system the school system so very common and TI a craft is the largest provider of four oh three bees in the industry and they were doing this quite frankly long before for one case came on to the landscape yeah a the letter I in TI eighty is insurance TI a stance for teachers insurance annuity association of America and so we have to recognize that yes they are a new products now back in the nineteen fifties and sixties and even into the seventies there were no other options so okay you grin and bear it but then the world of mutual funds came up and so Congress amended the law creating something called for a three B. seven which allows these nonprofits to introduce mutual funds into their retirement plans not limiting them to a duty products and that's when T. I. A. created crafts the college retirement equities fund and the quest products are in fact mutual funds and so if you were wise school system offers the craft side of the equation there will be mutual funds available there but if they don't if they're still using the four three B. version rather than the four three D. seven then you're right there's nothing available other than a nobody products and these new products generally are very expensive they are generally under perform the markets because by definition annuity products are more conservative so while we're on the subject of TI a craft let me tell you one of my frequent rants about this say that you put your money into crafts using their mutual funds and you do that and these are investing in the stock market for example and you're happily doing that for the course of your career you're nearing retirement and you want to reduce your investment risk so you transfer the money from craft over to T. I. a S. getting the money out of the stock market and into one of the annuities this way your attitude is on reducing my wrist and I don't worry about the stock market crashing etcetera great except for one problem what you might not realize because what TIAA-CREF might not tell you is that when the money was in craft you had full liquidity capabilities of your money but when you transfer it over to T. I. A. essay which is an irreversible decision by the way you're limited to making withdrawals of no more than ten percent per year of the value of the account you've given up liquidity on ninety percent of the money you've been saving for your whole career and too often people who deal with TI a craft don't know that they just made a one way trip out of craft and into T. I. A. since there's no matching contribution by the employer your room asking the right question sure my wife put money into an account that is expensive than under performing when the only benefit of doing so as a tax deduction when I can instead just invest on an after tax basis into alternative investments that in the long run have better tax treatment because of capital gains rates and the better opportunity or potential for returns so you're not crazy to be thinking that way fact we might even take it a step further you can have your cake and eat it too to the extent that your wife is eligible to contribute to a deductible Iraqi so she can do to some degree in her IRA which she would have been able to do in the for a three day and there's a another thing to consider it's possible that her employer will offer through the for three day a money market fund so your wife can contribute the money to the money market fund and then you can see if the employer will allow her to do something called an in service distribution were even though she still working there she can transfer the money from the money market fund to an Iraqi so she gets the best of both worlds you can contribute to the maximum under the rules in a four three D. which is more than you can do an IRA transfer the money to an Iraqi unable to her to continue to enjoy the tax deferral while at the same time picking investments that you and she won her to have and what did she do it in service transfer it tells it depends on the employer so sometimes it's once a year sometimes there's no limit it really depends on the employers to whether they allow it and the details associated with that so talk to the employer and find out greater detail about what options are truly available in the four three B. plan whether or not there's a money market type of product available and whether or not they allow in service distributions okay that sounds great thanks for the information you're very welcome I'm glad you called your little millions of school teachers and hospital employees are suffering the same limitations as your wife Barry because of the antiquated rules associated with war three bees I don't understand why Congress has an update of the rules and fix this to the people who work for nonprofits have the same.

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