Choosing a TSA plan

Last updated: 9/14/2009 8:47:04 AM

When comparing plans, whether you are just getting started or considering a transfer, it's the details that matter.

1. Annual fees. A difference in one percentage point may not seem like much, but over time it can mean thousands of dollars. Fees cut into your rate of return. If a plan charges 5% a year in fees, an investor then has to earn a return of 5% to break even. Fees are often broken down into maintenance expenses and fund-management expenses. Another common fee for annuities is a mortality and death benefits charge. Make sure you know all the fees before choosing a TSA provider.

2. Penalties or hidden fees. Even if a plan advertises no sales commission and low annual fees, read the fine print. Some fees are disguised as penalties for surrendering the contract. Ask about surrender charges for closing the account before a specified date. Some annuities require a 7- to 10-year minimum holding period. Also, does your plan charge you to make account changes?

3. Interest rate. Don't be drawn to an investment solely by a higher guaranteed interest rate. Often times, these "teaser" rates are guaranteed for a short period and then are reduced after the first year.

4. Research the companies. For variable annuities that invest in separate accounts, look for respected third-party ratings of those accounts. Morningstar^TM and Motley Fool offer free analysis online.

Bob Moeller, WEAC's Financial Planner, provides a list of ten questions to ask any TSA provider in his article entitled "What to look out for with a TSA." Find out how WEA TSA Trust answered these questions, then compare us with other providers you are considering.

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