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vasily

Never Be Free From Former Employer's Rule?

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Dear fellow posters,

 

First I know that I should have my wife ask the company directly, but before that's necessary I found this forum and would like to get some input here, any reply will be helpful. Here goes: Last year my wife left her school job. She then rolled over her 403b to IRA. Her school's rule was that even after she left she couldn't transfer the asset out of the company which has the retirement accounts for the school. As a result, her rollover IRA stays where the 403b had been. Our question is: Since now this has become an IRA account, is it still subject to the former employer's rule? In other words, can she now transfer the IRA out to another inverstment company? Looking forward to response.

 

Sincerely,

Vasily

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IRAs are always available to the account holder. The owner of an IRA always has the right to roll the money from one IRA account to another. This can be accomplished in one of two ways:

 

First, you can physically withdraw all or a portion of the assets from the IRA and roll them into another IRA within 60 days. You can do this one time per year per IRA.

 

Second, you perform an unlimited number of trustee to trustee transfers between IRAs. This is done by instructing the current trustee to send all or a portion of your IRA to another IRA trustee.

 

Since an employer has absolutely no control over IRA assets, there is nothing they can do to prevent you from making a rollover or transfer. The existing IRA account may have withdrawal charges or other fees, but aside from that, they have no right to prevent a rollover or transfer, either. It's your wife's money... she can do with it as she sees fit.

 

Hope this helps.

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Hi,

 

Thank you very much for your timely reply! Of course your answer is just what I wanted to hear (and what sounds the reasonable thing)! But if that is the case, then it really makes the employer's rule virtually useless, doesn't it? It only adds one extra step for the transferring out: first roll over within.

 

vasily

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In my opinion, the school's rule cannot be enforced.

 

First of all, the income tax regulations require plans to allow direct rollovers of amounts that are Eligible Rollover Distributions. An Eligible Rollover Distribution generally is a distribution to an employee on account of a qualifying event, such as separation from service. There are certain distributions that are NOT Eligible Rollover Distributions; however, if your wife is not yet age 70-1/2, chance are her distribution was an Eligible Rollover distribution as evidenced by the fact that she rolled it into an IRA.

 

Second, amounts in a 403(b) are nonforfeitable. Basically, it means that the money belongs to the participant. When separation of service occurs, the employer cannot control the money.

 

I don't know the motivation behind the rule that the school has in place, but it would be pretty easy to convince them that the rule is contrary to the Internal Revenue Code. That might be nice to keep in the back of your mind in case they give you any grief when you try to roll from the existing IRA to another.

 

Good luck!

 

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Hi,

 

Thanks for the explanation. I just realized I forgot to mention to you that the employer contributed a match (small percentage) for every employee's contribution to his/her account, so most likely this is the reason they had this rule, and they seem to be entitled for part of control of the account, at least when it's still in 403b. Given this fact, do you still think they should have no control relating to transfer of the rollover IRA (part of which had been contributed by employer)? Looking forward for reading your reply. Thanks a lot for spending the time to answer my questions!

 

Vasily

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Her school's rule was that even after she left she couldn't transfer the asset out of the company which has the retirement accounts for the school.

=====================================================

 

Michael: The Plan has the right to restrict distributions from accounts of former employees. i.e.; They could compel lifetime annuitization at a certain age or allow for a lump-sum settlement but not before reaching age 59.5 etc.

 

Could the Plan make an argument that pursuant to the PD an improper distribution was made and demand that the former employee return the money and thus reestablish her account with the Plan? Is not the Plan itself at risk for making an improper distribution?

 

Peace,

Joel

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Her school's rule was that even after she left she couldn't transfer the asset out of the company which has the retirement accounts for the school.

======================================================

Vasily: Could you tell us, according to the rules of the plan, when is a former employee entitled to a distribution and what are the distribution options?

 

Joel

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Hi,

 

Thank you for the reply.

 

Does distribution restrictions=income options=cash rule? If so my wife said she did get the information from the rep when she was rolling over last year. This is what she got (I'm not very clear what it all means): if she's not eligible for retiree health care yet, up to 100% can be cashed, but the former employer (school) must approve for 100%. Or, if she's reached retirement age, up to 70% can be cashed. If she later works for another institution participating the same company, and terminates employment (in the latter institution), then that (latter) institution's rule may apply to the funds from aforementioned earlier employment.

 

They didn't mention whether the funds are in 403b or rolled over to IRA.

 

Vasily

 

 

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Sorry for being so slow. Your wife has a 403(b) with a former employer. If she wants to rollover to an IRA she must use the same firm that handles the 403(b) Plan. This is indeed a foolish rule. I suspect the 403(b) is high cost and so is the IRA...thus the rationale for the "foolish" rule. Not so foolish, however, for the vendor.

 

Please let us know if the 403(b) is high cost and did your wife pay high costs to invest in the IRA with the rolled over money?

 

Peace,

Joel

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Joel, in fact there is very low cost participating my wife's school's plan. My wife said it's one of the lowest in the industry, much better than what I'm getting!

vasily

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Vasily,

 

Apparently your wife's former employer did a good deed: Under the 403(b) rule they adopted, your wife went from a low cost 403(b) to a low cost IRA rollover account all within the same family of no-load funds. If this is in fact the case why are you entertaining the thought of doing a second rollover? Would you care to disclose the family of funds your wife had under the 403(b) Plan and the funds she currently has with the IRA rollover account?

 

Joel

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