Kiplinger's Personal Finance
Like gauze on a camera lens, a bull market can hide a lot of blemishes in retirement savings plans.
But when the market heads in the other direction, the plan's flaws become glaringly apparent.
That's particularly the case with some 403(b) savings plans.
Typically offered to public school teachers, 403(b) plans have the same tax benefits and contribution thresholds as 401(k) plans, but they're often vastly inferior to their private-sector counterparts. Many school districts turn the job of offering retirement plans over to sales agents, who promote investments with high-cost equity-indexed and variable annuities.
If you find yourself stuck with a poor-performing 403(b) plan, you have a few options, said Scott Dauenhauer, a certified financial planner with Meridian Wealth Management in Murrieta, Calif., and founder of the Teacher's Advocate blog.
First, get the name of the plan's compliance administrator from your school district and ask the administrator for its approved provider list.
You might be able to find a low-cost provider, such as Fidelity, Vanguard or Aspire Financial Services. If you can find such a hidden gem, he said, add it to your plan and direct future contributions to its suite of funds, he says.
If you already have equity-indexed or variable annuities in your 403(b), transferring that money to a new provider could trigger surrender charges of 5% or more. But if your new funds come with low fees, you'll probably recover those costs in a couple of years, Dauenhauer said.
If your research reveals only bad options, consider lobbying your employer for better choices. You can find information about how to approach your employer at www.403bwise.org, a nonprofit organization that advocates for teachers.
Finally, if your plan is unsalvageable and your employer unresponsive, you might be able to take advantage of a penalty-free withdrawal to switch to a better plan.
The Coronavirus Aid, Relief and Economic Security (CARES) Act allows individuals who have been affected by the coronavirus to withdraw up to $100,000 from any retirement plan - including a 403(b) - without paying a 10% early withdrawal penalty. If you repay the money in three years, you won't have to pay taxes on the withdrawal.
The key here is that you can return the money to any eligible retirement plan - which means instead of putting it back in your 403(b), you could instead invest it in a low-cost IRA.
For this strategy to work, your employer must permit coronavirus withdrawals and you must be eligible to take one.
You qualify for a coronavirus withdrawal if you, your spouse or one of your dependents has been diagnosed with COVID-19. You're also eligible if you or your spouse have suffered adverse financial consequences as a result of the pandemic, which include layoffs, a reduction in hours or inability to work because of childcare obligations.
As is the case with rolling your money into another provider's funds, this strategy could trigger surrender charges.
Your best bet: Find a financial adviser who is knowledgeable about 403(b) plans to help you navigate the process.