Can You Roll a 403b Into an IRA in Kind?
Suppose you have been working for the same organization for many years, contributing to your employer's 403b tax-sheltered annuity retirement savings plan. If you are happy with the performance of the investments, you may want to keep these same assets if you leave the organization. There is more than one way to keep your investments "in kind."
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In-Kind Rollovers
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An in-kind transfer keeps all mutual funds as they are; it even transfers employee stock owned in the plan. Nothing is liquidated, so you can keep your investment shares without worrying about market fluctuations. For rollover assets to be moved in-kind, the 403b plan participant must request a direct rollover. The direct rollover moves the assets in a method similar to a transfer in which the 403b plan administrator sends the assets directly to the new IRA custodian you choose. This is an option that you, as the plan participant, must elect. Accidentally selecting an indirect rollover may complicate things in addition to excluding the possibility of keeping the assets in-kind.
Indirect Rollover Problems
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An indirect rollover often is the default rollover option for retirement plans, because it is the easiest for the plan administrator to handle. The funds are liquidated, a check is sent to you and you must deal with everything. This is not at all like an in-kind direct rollover. The Internal Revenue Service mandates 20 percent federal withholding, so your $100,000 403b check arrives with $80,000. To complete the rollover without tax penalty, you must deposit the $80,000 and find another $20,000 to put into the rollover IRA. This has to be done within 60 days. You can repurchase the funds you had, but there is no guarantee you will get the same number of shares for the money.
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Making the Proper Election
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Making the proper election starts with visiting the financial institution where you want to put your rolled over funds. If you are rolling mutual funds or stocks, you need to open a brokerage firm's rollover IRA to hold the assets. Once the account is open, take the new account number with the custodian's name and address and write the information on the rollover paperwork provided by the 403b administrator. There are no assets in this account until the rollover is complete. You do not need to worry about the time frame because you are not the conduit, and there is no withholding.
Other Options
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If you have been satisfied with investment performance, ask your 403b plan administrator what options you have regarding keeping the 403b with the organization's plan. The IRS allows this option, and it has two significant benefits. One is cost. When you are part of a larger plan, the cost to you is often reduced. The second is specific to 403b plans: early retirement. If you left the organization after the age of 50 and keep your 403b with the plan administrator, the IRS allows you to take penalty-free distributions starting at age 55 rather than at 59 1/2 as in all other retirement savings accounts. Not only are you able to keep your investments in-kind with this option, you can access them sooner.
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