Jump to content
Sign in to follow this  
sschullo

"penny-pincher" All-etf Portfolio

Recommended Posts

FYI, ETFs are generally not available in 403(b) plans, as they do not qualify as a a permissible investment under Code Section 403(b) (i.e., they are not 403(b)(1) annuities or 403(b)(7) cutodial accounts/mutual funds)

Share this post


Link to post
Share on other sites

Hi geek,

Right on!

I keep forgetting that most people are working and not eligible for 403b to an IRA rollover to purchase ETFs.

I was using this link as an example of a low cost portfolio using Vanguard. You might add that most teachers do not have Vanguard as a direct choice but cannot transfer money to VG either! Many thanks the new regs that "threw out the baby with the bath."

 

However, if a working teacher is over 59.5, they can execute a 403b to an IRA rollover and transfer money to Vanguard or any vendor not in their plan.

Thanks for the clarification,

Steve

Share this post


Link to post
Share on other sites

Hi geek,

Right on!

I keep forgetting that most people are working and not eligible for 403b to an IRA rollover to purchase ETFs.

I was using this link as an example of a low cost portfolio using Vanguard. You might add that most teachers do not have Vanguard as a direct choice but cannot transfer money to VG either! Many thanks the new regs that "threw out the baby with the bath."

 

However, if a working teacher is over 59.5, they can execute a 403b to an IRA rollover and transfer money to Vanguard or any vendor not in their plan.

Thanks for the clarification,

Steve

 

 

What about a district where the plan doc does not allow for the transfer out of funds until you create a separation of service, per the TPA's attorney?

Share this post


Link to post
Share on other sites

Hi big,

The financial consultant to our 457b oversight committee said that any person over 59.5 can roll over their 403b into a rollover IRA and transfer to any vendor.

I cannot answer your specific question but I am quite sure somebody else more knowledgable will answer your question.

Steve

 

 

Share this post


Link to post
Share on other sites

 

FYI, ETFs are generally not available in 403(b) plans, as they do not qualify as a a permissible investment under Code Section 403(b) (i.e., they are not 403(b)(1) annuities or 403(b)(7) cutodial accounts/mutual funds)
I do recall seeing an IRS publication that allowed inclusion of ETS or CEFs, I was skeptical, which is why I distinctly remember that experience. Let me see if I can dig it up.

Share this post


Link to post
Share on other sites

§ 851:

 

(a) General rule

 

For purposes of this subtitle, the term "regulated investment company" means any domestic corporation—

(1) which, at all times during the taxable year—

(A) is registered under the Investment Company Act of 1940, as amended (15 U.S.C. 80a–1 to 80b–2) as a management company or unit investment trust, or

 

403(7)

(7) Custodial accounts for regulated investment company stock

(A) Amounts paid treated as contributions

For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401 (f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if—

(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account,

...

 

© Regulated investment company

For purposes of this paragraph, the term "regulated investment company" means a domestic corporation which is a regulated investment company within the meaning of section 851 (a).

 

 

BenefitsGeek- would you interpret this as allowing ETFs within a 403b7, as long as it is held in a custodial account designed for this purpose?

 

 

Share this post


Link to post
Share on other sites

§ 851:

 

(a) General rule

 

For purposes of this subtitle, the term "regulated investment company" means any domestic corporation—

(1) which, at all times during the taxable year—

(A) is registered under the Investment Company Act of 1940, as amended (15 U.S.C. 80a–1 to 80b–2) as a management company or unit investment trust, or

 

403(7)

(7) Custodial accounts for regulated investment company stock

(A) Amounts paid treated as contributions

For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401 (f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if—

(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account,

...

 

© Regulated investment company

For purposes of this paragraph, the term "regulated investment company" means a domestic corporation which is a regulated investment company within the meaning of section 851 (a).

 

 

BenefitsGeek- would you interpret this as allowing ETFs within a 403b7, as long as it is held in a custodial account designed for this purpose?

 

 

Only if the the ETF is regulated as a mutual fund under IRC 851. I thought ETFs were traded on a stock exchange not a mutual fund.

 

Share this post


Link to post
Share on other sites

Most ETFs have an equivalent mutual fund as their base, I know that is true for the Vanguard funds in the article. So you can buy essentially the same product in whichever form you need. As an ETF through a brokerage IRA, for example, or as a mutual fund through your 403b(7) account.

 

One difference is that the ETF expense ratio is usually a bit lower, since the fund company does not need to service an individual account for each ETF buyer.

 

 

Share this post


Link to post
Share on other sites

§ 851:

 

(a) General rule

 

For purposes of this subtitle, the term "regulated investment company" means any domestic corporation—

(1) which, at all times during the taxable year—

(A) is registered under the Investment Company Act of 1940, as amended (15 U.S.C. 80a–1 to 80b–2) as a management company or unit investment trust, or

 

403(7)

(7) Custodial accounts for regulated investment company stock

(A) Amounts paid treated as contributions

For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401 (f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if—

(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account,

...

 

© Regulated investment company

For purposes of this paragraph, the term "regulated investment company" means a domestic corporation which is a regulated investment company within the meaning of section 851 (a).

 

 

BenefitsGeek- would you interpret this as allowing ETFs within a 403b7, as long as it is held in a custodial account designed for this purpose?

 

 

Only if the the ETF is regulated as a mutual fund under IRC 851. I thought ETFs were traded on a stock exchange not a mutual fund.

 

Some ETFs fall under the category of UITs, which fall under the definition of a regulated investment company. This would allow inclusion in 403b7. I would imagine it would not be easy to administrate such an arrangement, but it is definitely a legal and viable option, albeit rare.

Share this post


Link to post
Share on other sites

Yes, the ETFs that are common in the marketplace are generally NOT 403(b)(7) custodial accounts.

 

 

 

§ 851:

 

(a) General rule

 

For purposes of this subtitle, the term "regulated investment company" means any domestic corporation—

(1) which, at all times during the taxable year—

(A) is registered under the Investment Company Act of 1940, as amended (15 U.S.C. 80a–1 to 80b–2) as a management company or unit investment trust, or

 

403(7)

(7) Custodial accounts for regulated investment company stock

(A) Amounts paid treated as contributions

For purposes of this title, amounts paid by an employer described in paragraph (1)(A) to a custodial account which satisfies the requirements of section 401 (f)(2) shall be treated as amounts contributed by him for an annuity contract for his employee if—

(i) the amounts are to be invested in regulated investment company stock to be held in that custodial account,

...

 

© Regulated investment company

For purposes of this paragraph, the term "regulated investment company" means a domestic corporation which is a regulated investment company within the meaning of section 851 (a).

 

 

BenefitsGeek- would you interpret this as allowing ETFs within a 403b7, as long as it is held in a custodial account designed for this purpose?

 

 

Only if the the ETF is regulated as a mutual fund under IRC 851. I thought ETFs were traded on a stock exchange not a mutual fund.

 

Some ETFs fall under the category of UITs, which fall under the definition of a regulated investment company. This would allow inclusion in 403b7. I would imagine it would not be easy to administrate such an arrangement, but it is definitely a legal and viable option, albeit rare.

 

 

Share this post


Link to post
Share on other sites

Join the conversation

You can post now and register later. If you have an account, sign in now to post with your account.

Guest
Reply to this topic...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...
Sign in to follow this  

×
×
  • Create New...