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elcraig

Difference Between 403(b) And 401k

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About a year ago, I seem to remember reading either on this website or in a magazine article that one of the differences between a 401k and a 403b is that an employee in a 403b can legally choose a fund family outside those which the employer has elected to sponsor. Is this true?

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Yes, provided the employer permits it (most do) a 403b participant may effectuate a Revenue Ruling 90-24 capital transfer of his 403b balance to another 403b investment. The successor carrier need not be on the employer's platform of 403b annuity or custodial account issuers. This is allowed because the 403b assets are owned by the individual. This is disallowed with a 401(k) because the assets are owned by the 401(k) Plan's Trust. And a distribution may only be made when there is a qualifying trigger event. The desire to change investment portfolios is not a qualifying triggering event.

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Something I have been wanting to ask about...Schwab, for example, in explaining the rules for this type of transfer, indicate that the employer must not have made deposits into the 403b. In my case, for example, the District matches part of the contribution and we have the choice to match into the 403b or the 457 plan. Does this then mean that even if the District would normally allow a transfer, when we match into their 403b, they would then DIS allow the transfer? Their portion of the match is technically my money at that point.

 

Many thanks for your continued help.

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Revenue Ruling 90-24 is permissive, not madatory. Most employers, however, do honor such requests. Having said that, the Ruling does not differentiate between er contributions or ee contributions. So you must ascertain from your employer if they will allow er contributions to be transferred.

 

Peace and Hope,

Joel

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