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403(b) Story: Custodian Cleans Up His 403(b)

As a school custodian, Jeff York is used to tidying up. Like too many public school employees, his initial foray into the 403(b) was a bit of a mess. “I was sold an annuity in 1997,” said the 52-year-old who works in Redding, California. He contributed $2,600 that year. Jeff soon bought two more annuities. He thought he was diversifying his portfolio. 

An investing class a few years later opened his eyes to the world of fees. York continued educating himself on investing and personal finance by reading books and listening to podcasts. The Millionaire Next Door by Thomas Stanley was a favorite. The now out-of-print 403(b) Wise Guide by Dan Otter and Scott Dauenhauer, CFP was also influential. York became a big fan of the 403(b) advocacy site 403bwise.com that Otter operates and where Dauenhauer contributes. 

90-24 Transfers

All of this new knowledge led him in 2002 to initiate 90-24 transfers from his current high fee vendors to Vanguard, which was not an available option through his employer at the time. Dubbed a “frozen” 403(b)(7) account by Vanguard, this maneuver was widely used during this time to gain access to low cost vendors not offered by an employer. Jeff performed 25 of these. New IRS regulations have limited this type of transfer.  

Depression Era Values

Raised by Depression-era parents who instilled the values of hard work and frugality, York took classes at a local community college, but he says: “I wasn’t completely wired for academics.” York realized he wasn’t destined for a white-collar job. “There was gonna have to be a different way for me in life,” he says. “I needed to use the skills that I had that were innate in me and one of the skills was saving.”

He’s made trade-offs to grow his retirement savings but feels those sacrifices have paid off. “I grew up in an environment where you don’t buy new cars,” he says. “Most of my peers were buying homes. I lived for 14 years in someone’s backyard in a small studio. That’s what freed up the cash flow. Every time I would get a raise, I would just throw all that in [my retirement accounts].”

Six Figures

Today, York self manages a 403(b) account that has grown to the high six figures. It has helped that his employer added Vanguard as a regular vendor.

He did buy a house in 2010, but it’s a modest entry-level track house without fancy upgrades. “What’s very difficult for most people is that middle class values inhibit people from becoming wealthy,” he says. “That’s why you are middle class. Everybody feels you have to have a car payment or buy too big a house.”

Saving in a 403(b) account has given York peace of mind for his future. “You know how guys work on improving their income through jobs or business or education?” York says. “I improved it by personal finance.”

He Knows How it Works

As the account balances in his three annuities grew smaller with each 90-24 transfer to Vanguard, a representative from one of the insurance companies called Jeff. He didn't try to talk him out of moving his money. Instead the representative said: "You don't need us anymore, Jeff. You know how it works." Indeed.

Jeff York is interviewed on episode 53 of the Teach and Retire Rich podcast

Susan Johnston Taylor is an Austin, Texas-based freelance writer for TraditionalIRA.com and RothIRA.com. She has covered personal finance and small business for publications including The Boston Globe, Entrepreneur, Fast Company, and U.S. News online.