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bobwhitesr

Can I Roll This Over?

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Years back when Vanguard was a vendor for my 403b, I made contributions for a few years then stopped. Some time after that Vanguard was dropped as a vendor but the 403b plan is alive and well. Any chance the fact that because Vanguard was dropped as a vendor I could roll my money out into my IRA like I could do if the entire plan was terminated?

 

Also, when I'm 59 1/2 can I take the money out of the 403b and put it into my IRA even though I'm still working there?

 

Thanks for the help.

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What you have is what I have, a frozen 403b. You can't touch it until you are 59.5. Then you can move it to an IRA. If you seperate

from service you can move it then as well. I can't wait until I am 59.5 (next year) so I can be done with all this 403b nonsense, move it all to vanguard and consolidate.

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So once I hit 59 1/2 I can roll everything out of the 403b and into my IRA, right? But I can still keep contributing to my 403b, then rolling it over year by year?

 

It depends if the plan document allows it or not. Some plans restrict that just for the reason you are referencing above.

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Big Read

 

Thats true possibly but they can't force you to not transfer it out of the 403b plan at 59.5 can they?

Yeah they can. The overall plan document can restrict in-service withdrawals if they so choose. The plan doc governs all contracts as part of the plan.

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Big Read

 

Thats true possibly but they can't force you to not transfer it out of the 403b plan at 59.5 can they?

Yeah they can. The overall plan document can restrict in-service withdrawals if they so choose. The plan doc governs all contracts as part of the plan.

 

Big Red,

 

I can say that the current plan doesn't make such stipulations. I doubt my fellow employees are savvy enough to think to roll their money out at 59 1/2, let alone continue to make yearly transfers after that. If I were doing that regularly would the employer/TPA create new rules and/or fees to dissuade or prevent me from doing that?

 

Well, in most cases there's a TPA involved. So the TPA would have to absorb the hassle of having to do annual transfers which, in terms of manpower may raise their cost of doing business. Also, in situations where the TPA is getting a kick back from the vendor or charging a percentage fee on the balance, any transfers out of the 403b plan and into an employees personal IRA (or an employees pocket) will cost the TPA money. In cases where the employer doesn't use a TPA such kick backs are unlikely so it would just be the hassle/cost of doing yearly transfers.

 

But consider what you are saying (as I understand it). The 59 1/2 stipulation by the IRS is a big deal and a core part of the whole 403b/401k concept. You can get your money out at 59 1/2, but until then you pay a penalty. If you tell the employee he can't take his money out until he quits his job, then that dramatically alters the entire 403b/401k concept. Has anyone here ever even seen such a restriction on a real life 403b plan? I'd be very doubtful any actually exit. The idea that an employer with an established 403b plan would later apply such a restriction is even more absurd. Imagine investing your money for 10 or 20 years expecting to be able to take it out when you hit 59 1/2 only to find your employer has suddenly changed the plan. You might even have grounds for a lawsuit.

 

So, while it might be literally possible, I think the idea that a 403b plan would prohibit withdrawals at 59 1/2 is highly implausible. However, I can imagine a scenario where the TPA/employer could have or create a rule that charges a transfer out fee that would help pay for the addition costs and hassle. For example, they might say one transfer every 5 years is $0 cost, but each transfer beyond that costs $50 or something like that.

 

One other thing to consider is that some vendors will charge transfer fees when moving balances out (and sometimes in). This fee is usually a flat rate. In one case I know of the fee is like $75 and you probably wouldn't know about it unless you read the fine print. So you'd be paying that each time you transfer a balance. I'm not talking about fees on regular contributions, just fees on vendor-to-vendor transfers (in or out of the 403b). Same with the TPA. They might have a flat transfer fee on anything going out or coming in and anything moving vendor-to-vender within the plan. I can't say I've encountered this, but I'm sure it's possible.

 

Also, I've heard some vendors make getting your money out difficult even AFTER you've quit your job. I'm also guessing some will charge surrender fees or even possibly back loads. (Many vendors put the employee's investment into annuities inside the 403b) I think these sorts of fees are primarily just a way for the vendor to increase their profits, but they might also have a deterrent effect on frequent transfers.

 

In short, I think rolling your money out at 59 1/2 into a no load low fee IRA is a good strategy and I doubt an employer would ever get away with stopping you from doing it, nor would he have any real motivation to do so. Consider also that in many cases these 403bs are held by school districts where the unions would throw their weight around. Also consider that in the case of smaller non-profits there might not even be a TPA, but even if there was the employee/employer relationship would likely be more personal so the employee could plead his case with more effect. After doing the big lump transfer at 59 1/2, regular transfers out after that would at worst get you hit with some extra costs in transfer fees which might make it not worth doing regular annual transfers depending on how big your contribution is each year and how excessive the fees are in your 403b. That's my 2 cents anyway.

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Guest Joel L Frank

From the website of the Supplemental Annuity Collective Trust of New Jersey: "Generally, your SACT-Regular or SACT-Tax-Sheltered account may only be paid out when you cease to be an active member of the basic retirement system due to withdrawal, death, or retirement."

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Can a plan document supercede what is stated on the IRS webpage?????? The IRS webpage says 59.5 is the age you can transfer it out.

 

Good question. The IRS says you can take out loans and hardships, but individual plans are free to prohibit these options. Is the 59 1/2 clause an option or is it a fundamental requirement of the 403b account itself as created by the IRS? My 2 cents is that it doesn't matter. The very nature of the employer-TPA-employee relationship makes elimination of the 59 1/2 rule implausible.

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Guest Joel L Frank

Internal Revenue Code sections 403(b)7 and (b)11 list the earliest dates (triggering events) upon which one may effectuate a distribution. The PD must adhere to these requirements but may make these triggering events more restrictive; i.e., the SACT Plan of New Jersey where one must sever active membership in the basic retirement system by withdrawal, death or retirement.

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Internal Revenue Code sections 403(b)7 and (b)11 list the earliest dates (triggering events) upon which one may effectuate a distribution. The PD must adhere to these requirements but may make these triggering events more restrictive; i.e., the SACT Plan of New Jersey.

 

With respect to the topic of the thread, how does the SACT plan of NJ make it more restrictive?

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Guest Joel L Frank

From the website of the Supplemental Annuity Collective Trust of New Jersey: "Generally, your SACT-Regular or SACT-Tax-Sheltered account may only be paid out when you cease to be an active member of the basic retirement system due to withdrawal, death, or retirement."

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From the website of the Supplemental Annuity Collective Trust of New Jersey: "Generally, your SACT-Regular or SACT-Tax-Sheltered account may only be paid out when you cease to be an active member of the basic retirement system due to withdrawal, death, or retirement."

 

Clearly I don't know much about the account your referring to. I don't even know what SACT stands for. Even so, "Generally" leaves the door open, and couldn't the "due to withdrawal" reference mean exactly the kind of withdrawal we're talking about? Beats me.

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