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403b To 401k

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#1 pab

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Posted 13 October 2004 - 08:08 AM

I am a former teacher, under 55, who has a 403b account with my former school district. I am now employed in the private sector. Can I, and, if so, how do transfer my 403b money into the company's 401k offering? Maybe I should also ask, should I transfer the money? Please refer me to any IRS information regarding the transfer.
All advice appreciated.

#2 Michael Devault

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Posted 13 October 2004 - 11:55 AM

It is permissible to transfer money in a 403(b) into a 401(k) plan, just as long as two conditions exist. First, you must be eligible to receive a distribution from the 403(b) plan. The fact that you have severed employment with the employer should qualify you to receive a distribution. Second, the 401(k) plan must accept rollovers from other plans. Check with your employee benefits department about this, if you haven't done so already.

You should effect what is known as a direct rollover. This is made direct from the 403(b) plan to the 401(k) plan. If you receive the proceeds directly (which you're entitled to do), the 403(b) plan must withhold 20% for federal income tax purposes, so you'll receive 80% of your money. You can roll 100%, but you will have to get the remaining money somewhere else and "settle up" when you file your income tax return next April. It's much better to do a direct rollover.

I suggest that you start with the employee benefits department of your new employer. They may have forms, etc. that will facilitate the direct rollover. If they don't, go to the 403(b) provider and tell them that you want to make a direct rollover to a 401(k) plan. They should be willing and able to provide you with the forms and instructions necessary.

To find additional information, look at the IRS' website. Download Publication 571 and Publication 575. The former should give you information specific to your 403(b) and the latter information about the rollover rules that pertain to 401(k) plans.

I hope this helps. Good luck!

#3 Yanikoski

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Posted 13 October 2004 - 03:27 PM

Perhaps you have a very strong reason to transfer your 403(b) money into your 401(k) plan, but other than the convenience of having one account instead of two, this may not be a particularly good idea.

You control your 403(b) account, and you can easily transfer it to another product, or even roll it over into an IRA where you would have even more flexibility. Your 401(k) plan will offer you a limited selection of investment choices -- fairly large, perhaps, but still very limited compared to all the possibilities that are out there. Your 403(b) can go to any mutual fund or annuity company that accepts 403(b) business, and IRA funds can be invested almost anywhere at all. Are you sure you want to give up that flexibility?

Not that there can't be good reasons to roll over into a 401(k). If, for example, you need to take a loan against your funds and your 403(b) provider does not offer this option, perhaps your 401(k) administrator does. So I am not suggesting that you definitely should not move to the 401(k) -- just that you should do so only if there is really a good reason for it.