Rollover from a 403(b) or NOT!!

"When can 403(b) money be accessed without penalty? Generally, penalty-free distribution from a 403(b) cannot occur until the participant: Reaches age 59 1/2 Separates from service in the year turning 55 (and must be retired) Retire before age 55 - eligible for Substantially Equal Periodic Payments (SEPP). Participants who have retired early (before age 55), but want access to their 403(b) without penalty can do so using SEPP. This provision requires that you take a series of substantially equal periodic payments. The key is that once you start these payments they must continue for five years or until you reach 59 1/2, whichever takes longer. If you start at age 58 you must continue until you are 63 (minimum 5 years). Becomes disabled (as defined in section 72(m)(7) of the Internal Revenue Code) Through a loan (some investment companies allow this, some do not) Dies Consulting a tax professional before accessing 403(b) money is highly recommended."

John Cowart

She wants to roll them into an IRA, not access the funds.

The point was: she's age 53, coming up on the age 55-59.5 window where a 403(b) has the advantage of penalty-free access, which the IRA lacks. When a person is in their 50s, the chances of becoming unemployed increase quite a bit, so it's good to have some readily available funds.

John Cowart

The point was: she's age 53, coming up on the age 55-59.5 window where a 403(b) has the advantage of penalty-free access, which the IRA lacks. When a person is in their 50s, the chances of becoming unemployed increase quite a bit, so it's good to have some readily available funds.

John Cowart

John, please re-read the original message. The OP is retired and is collecting a pension.

That's totally irrelevant - the fact that she is collecting a pension would not, by itself, allow her to withdraw funds from an IRA without paying a penalty at age 53. If she leaves the funds in the 403(b) she can get to them penalty-free 4.5 years earlier than if they were in an IRA. That is the primary advantage that 403(b) and 401k plans have for people who are less than 59.5 years old. Moving the funds to an IRA has no advantage for her, unless she is unhappy with the investment choices available in the 403(b).

John Cowart

What is irrelevant is your contention that people of her age are more likely to become unemployed and needs to access their 403B funds. OP is already retired, although she still works in post-retirement. If she becomes unemployed, she has a pension to fall back on.

Moving the funds to an IRA would be advantage to her heirs over a 403B, if she were to leave them the funds from the IRA.

That sounds interesting - some details please.

John Cowart

Uh, po, your point was relevant, as I hope is my next observation. OP's first account, $110,000 is in NEA Valuebuilder, through which one can buy mutual funds, I can't find the expenses, but since they talk about A, B, C shares, my gut says there are some hefty fees. I hope OP will look and advise the total fees he is paying in that account. Even John might agree that another year in this account may be worth avoiding if the annual expense is 2%+.

Second account is earning 4% fixed. Huh? CDs are now well above that. Seems to me an evaluation of current situation is in order. And it's not all or none. Maybe moving one of the 2 to the IRA is the way to go. Best thing for heirs is to move some to the IRA, then start to convert to a Roth a bit at a time. JOE

This is the first item I come across on a search:

You can do your own search on stretch IRA.

Keep in mind a couple things;

The laws allow for similar 'stretch' on 401(k) (I'm not as familiar with

403B rules) accounts, but not all custodians follow this.

Starting in 07, 401(k) of non-spouse beneficiaries may roll to an inherited IRA same as if the deceased had an IRA. (Important to note; an inherited IRA for a non-spouse gets a title noting that it's been inherited, it doesn't just change owner.

JOE

The 403 (b) with over $100,000 is earning 7-8 % annually. The fixed one is earning a flat 4%. My main concern is earning power until age 59 1/2 or after. My pension has a COLA so I will continue to have annual increases of 3% but it will be reduced when the Social Security kicks in at age 66 or so I believe.

Maybe I should roll over the 4% fixed one and leave the larger one alone. I really do not need to start early withdrawal because my present job allows extra income and medical. Please advise based on this additional information. Thanks.

1) What is the annual expense ratio (the fees)? 2) What is it invested in? 3) When you say 7-8% annually, it sounds as if it's in a fixed product.

Most recent stock market returns (S&P)

2000 -9.0% 2001 -11.9% 2002 -22% 2003 28.4% 2004 10.7% 2005 5.0% 2006 ~14% (squiggle means approx., not negative)

7-8% over this period is excellent. From 2003 to today, only, you'd be lagging the market. Know the mix of funds in that account would help. JOE

The 103,00 is NEA Valuebuilder divided this way: American Century International Growth 10% Security Global 9% Wells Fargo Advantage Small Cap Value 9% Calamos Growth 9% Security Mid Cap Value 9% Dreyfus Appreciation Fund 10% American Century Select 10% Van Kampen Comstock 9% Fixed Account 25%

My Representative tells me that the cost is about 2% annually and recommends to go to an IRA with him at a 1% cost approximately or to go self directed with Vanguard at almost no cost at all.

I would would certainly roll the account to an IRA, but it's your decision whether to use the Rep, I don't understand your relationship with him now. He reps the 403(b) but would also service your IRA?

As you say, you can go self-directed at Vanguard for what in comparison, is no cost. US indexes range 0.10-0.20%, and foreign indexes a bit higher, but over time, 2% is quite the load to bear.

JOE

Joe, Thanks.

Amen to that. Play like we have two similar choices, one with a 1% annual expense ratio and the other with .5%. Also assume that we invest $100,000 earning 8% before expenses annually for 25 years using similar investment allocations.

Ignoring commissions if any, at the end of 25 years that .5% difference is approximately $67,500. And if we assume a 10% return (closer to historical average of stock market), the difference is over $100,000.

Welcome to compounding. (This also explains why, long-term, it's awfully difficult to beat the SP500 Index with its ultra-low expense ratio.)

-HW "Skip" Weldon Columbia, SC