“I recently left the employ of a public school system where I had a 401(a) account. I will now be teaching at a private school that offers a 403(b) plan. I am receiving conflicting advice about whether I can rollover tax free my 401(a) funds into my new employers 403(b) plan. Can the Experts help? Thanks!”
Stacey Bradford, Kimberly Boberg, David Levine and David Powell, with Groom Law Group, and Michael A. Webb, vice president, Retirement Plan Services, Cammack Retirement Group, answer:
Of course we can! But the Experts will need for you to check with your current employer to confirm one item; whether or not their 403(b) plan accepts rollovers from other retirement plans (most do). If it does NOT accept rollovers, then you cannot rollover your 401(a) account to your current employer’s 403(b) plan.
However, if it does accept rollovers (and, in the Experts’ experience, most 403(b) plans do indeed accept rollovers), then you can roll over funds from your 401(a) plan to your new employer’s 403(b) plan, as rollovers are permitted from 401(a), 401(k), governmental 457(b) and other 403(b) plans to a 403(b) plan. Whether the 403(b) plan in question is a public or private school 403(b) plan is irrelevant for this purpose.
However, there are a few other issues about which you should be aware as you complete your rollover, as follows:
1) There are two ways to complete a rollover: a direct rollover, where the rollover proceeds are made directly payable to the 403(b) plan of your current employer, and an indirect rollover, where the proceeds are made payable to you (subject to 20% withholding), and you are then responsible for redepositing the funds in the new 403(b) plan within 60 days of the payment. As you can probably figure out, the easiest method of ensuring the tax-free status of the rollover is by completing a direct rollover, as you will need to make up the 20% withholding with other funds if you want to roll over the full amount through an indirect rollover.
2) Some 401(a) plans charge a fee for rolling money out of the plan to a new plan, so you will want to confirm with your 401(a) provider as to whether or not this is the case.
3) If your prior employer allows you to retain the funds in your prior employer’s 401(a) plan, that is an option as well, though this means that you will have two plans to track. However, this situation may be preferable if the new 403(b) plan is more expensive than the prior 401(a) plan.
4) Your new 403(b) plan will be subject to some different rules than your previous 401(a) plan, since your new plan will not only be subject to some federal regulations under the Employee Retirement Income Security Act (ERISA), but will be subject to rules that are unique to 403(b) plans as well. Most of these new rules are designed to protect you and thus will probably be a positive; however, there are some rules, such as a spousal benefit requirement, that may affect your planning for retirement. Thus, you may wish to consult with a retirement professional to discuss some of these issues.
Best of luck with your new job and your rollover!
NOTE: This feature is to provide general information only, does not constitute legal advice, and cannot be used or substituted for legal or tax advice.
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