Rolling over a 403(b) while still employed?

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Topic Author
itsmeagain
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Rolling over a 403(b) while still employed?

Post by itsmeagain »

Hello Bogleheads!

I have a Rollover IRA at Vanguard from a previous employer, with the full range of brokerage account options.

I also have a 403(b) account at Vanguard from my current employer, which no longer uses Vanguard as the plan administrator for my current and future contributions. This 403(b) plan has good mutual-fund choices, but they are Investor funds (not Admiral) and I want to use ETFs and other brokerage options.

I am still employed by my current employer, but I'm over the age of 59.5. I understand that I can rollover the 403(b) into an IRA without paying taxes or penalty.

1. Is this understanding correct?
2. Can I combine the new Rollover funds with the existing Rollover IRA?
3. Are there any pitfalls that I need to avoid, or other concerns?

My motivations are two-fold. First, I would like to reduce the number of accounts by combining these two accounts into one. Second, I want to expand the range of my investment choices.

Thank you for any insights and advice.

EDIT: Perhaps what I have described is not a Rollover, because I would never have the funds. And it's not a transfer between custodians, because it's Vanguard to Vanguard. But it's from one plan and account to another plan and account.
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ResearchMed
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Re: Rolling over a 403(b) while still employed?

Post by ResearchMed »

Whether you can remove money from a 403b while stil employed by that employer depends upon the rules of your/your employer's particular plan.
Check with your HR Benefits group.

I don't think it's too common, but again, it's up to your employer as to how their own rules are set up.

RM
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Topic Author
itsmeagain
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Re: Rolling over a 403(b) while still employed?

Post by itsmeagain »

ResearchMed wrote: Mon May 10, 2021 8:06 pm Whether you can remove money from a 403b while stil employed by that employer depends upon the rules of your/your employer's particular plan.
Check with your HR Benefits group.

I don't think it's too common, but again, it's up to your employer as to how their own rules are set up.

RM
Thank you, ResearchMed. My employer's retirement website indicates I can do an in-service distribution after the age of 59.5, and that rollovers to IRAs are allowed as a type of distribution. But that's good advice, I will contact the HR office directly to see if I'm missing anything.

In the meantime, anyone else have any experience or know of pitfalls I should avoid?
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Re: Rolling over a 403(b) while still employed?

Post by crefwatch »

In some states, 403(b) distributions may be taxed differently than IRA distributions. In some states, one or the other may have different creditor or lawsuit protection. You may, possibly, have to get a check. If so, be sure it is made out to the new “Trustee, FBO Your Name”, and not to you. A few 403(b)’s today do have a brokerage option.
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itsmeagain
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Re: Rolling over a 403(b) while still employed?

Post by itsmeagain »

crefwatch wrote: Tue May 11, 2021 6:21 am In some states, 403(b) distributions may be taxed differently than IRA distributions. In some states, one or the other may have different creditor or lawsuit protection. You may, possibly, have to get a check. If so, be sure it is made out to the new “Trustee, FBO Your Name”, and not to you. A few 403(b)’s today do have a brokerage option.
Thank you, crefwatch. I don't think the state taxation or creditor protection issues will be relevant for me. However, I really hope to avoid a check. It would be a Vanguard to Vanguard, 403(b) to Rollover IRA transfer, so I hope they can handle that internally and without a check.
Sahara
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Re: Rolling over a 403(b) while still employed?

Post by Sahara »

itsmeagain wrote: Tue May 11, 2021 6:57 pm
crefwatch wrote: Tue May 11, 2021 6:21 am In some states, 403(b) distributions may be taxed differently than IRA distributions. In some states, one or the other may have different creditor or lawsuit protection. You may, possibly, have to get a check. If so, be sure it is made out to the new “Trustee, FBO Your Name”, and not to you. A few 403(b)’s today do have a brokerage option.
Thank you, crefwatch. I don't think the state taxation or creditor protection issues will be relevant for me. However, I really hope to avoid a check. It would be a Vanguard to Vanguard, 403(b) to Rollover IRA transfer, so I hope they can handle that internally and without a check.
If your Vanguard 403b is with Newport Group, I did this in 2019. I had to submit the paperwork to the district TPA, they sent it to Newport Group. Newport Group sent a check to Vanguard for the rollover IRA. So, it went to cash and was out of the market for a bit.

Another interesting element is that I continued to receive dividends for some time. They would come over to the settlement account in the Rollover IRA and I would exchange them into my funds.
retire2022
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Re: Rolling over a 403(b) while still employed?

Post by retire2022 »

itsmeagain wrote: Mon May 10, 2021 7:40 pm Hello Bogleheads!

I have a Rollover IRA at Vanguard from a previous employer, with the full range of brokerage account options.

I also have a 403(b) account at Vanguard from my current employer, which no longer uses Vanguard as the plan administrator for my current and future contributions. This 403(b) plan has good mutual-fund choices, but they are Investor funds (not Admiral) and I want to use ETFs and other brokerage options.

I am still employed by my current employer, but I'm over the age of 59.5. I understand that I can rollover the 403(b) into an IRA without paying taxes or penalty.

1. Is this understanding correct?
2. Can I combine the new Rollover funds with the existing Rollover IRA?
3. Are there any pitfalls that I need to avoid, or other concerns?

My motivations are two-fold. First, I would like to reduce the number of accounts by combining these two accounts into one. Second, I want to expand the range of my investment choices.

Thank you for any insights and advice.

EDIT: Perhaps what I have described is not a Rollover, because I would never have the funds. And it's not a transfer between custodians, because it's Vanguard to Vanguard. But it's from one plan and account to another plan and account.
https://www.irs.gov/pub/irs-pdf/p590a.pdf

see chart for rollovers page 22.

You may want to check with your present 403b plan or 457b plan, the later if you have that option to see if you have the ability to have "Self Directed Brokerage Account".
Topic Author
itsmeagain
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Re: Rolling over a 403(b) while still employed?

Post by itsmeagain »

Sahara wrote: Tue May 11, 2021 8:05 pm If your Vanguard 403b is with Newport Group, I did this in 2019. I had to submit the paperwork to the district TPA, they sent it to Newport Group. Newport Group sent a check to Vanguard for the rollover IRA. So, it went to cash and was out of the market for a bit.

Another interesting element is that I continued to receive dividends for some time. They would come over to the settlement account in the Rollover IRA and I would exchange them into my funds.
Thank you, Sahara, but my 403(b) is directly with Vanguard.
Topic Author
itsmeagain
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Re: Rolling over a 403(b) while still employed?

Post by itsmeagain »

retire2022 wrote: Tue May 11, 2021 8:14 pm https://www.irs.gov/pub/irs-pdf/p590a.pdf

see chart for rollovers page 22.

You may want to check with your present 403b plan or 457b plan, the later if you have that option to see if you have the ability to have "Self Directed Brokerage Account".
Thank you, retire2022, for that link. The Vanguard 403(b) plan that I am looking to leave does not have a brokerage option, but I have that option in a plan at TIAA.
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Re: Rolling over a 403(b) while still employed?

Post by RickBoglehead »

It is a rollover.

You have to check with the plan. Many times they'll liquidate the investments, then send a check, often to YOU, made out to the new custodian, assuming you supplied that information correctly.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Topic Author
itsmeagain
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Re: Rolling over a 403(b) while still employed?

Post by itsmeagain »

RickBoglehead wrote: Wed May 12, 2021 10:10 am It is a rollover.

You have to check with the plan. Many times they'll liquidate the investments, then send a check, often to YOU, made out to the new custodian, assuming you supplied that information correctly.
Thank you for that clarification, RickBoglehead. I don't mind liquidating the investments (since it's in a tax-deferred account). However, I hope to avoid receiving a check since it's from one Vanguard account to another Vanguard account.

Any advice on how to make sure that Vanguard personnel understand that and transfer funds directly?
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RickBoglehead
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Re: Rolling over a 403(b) while still employed?

Post by RickBoglehead »

itsmeagain wrote: Wed May 12, 2021 10:14 am
RickBoglehead wrote: Wed May 12, 2021 10:10 am It is a rollover.

You have to check with the plan. Many times they'll liquidate the investments, then send a check, often to YOU, made out to the new custodian, assuming you supplied that information correctly.
Thank you for that clarification, RickBoglehead. I don't mind liquidating the investments (since it's in a tax-deferred account). However, I hope to avoid receiving a check since it's from one Vanguard account to another Vanguard account.

Any advice on how to make sure that Vanguard personnel understand that and transfer funds directly?
Again, you have to contact the fund administrator of the 403(b). While that may be "Vanguard", it's "Vanguard Institutional", not "Vanguard Retail". Tell them you want to rollover your proceeds to your Vanguard Rollover IRA (if you don't have one, set it up FIRST and have the account number available). They will tell you if it's possible to do a direct transfer, or if they'll cut a check and send it to themselves, or if they'll cut a check and send it to you made out to Vanguard.

On the retail side, you simply start a process to RECEIVE it, but it won't go and GET it. That process tells you how they should make out the check, but you don't want to do that process before talking to the 403(b) side.
Avid user of forums on variety of interests-financial, home brewing, F-150, EV, home repair, etc. Enjoy learning & passing on knowledge. It's PRINCIPAL, not PRINCIPLE. I ADVISE you to seek ADVICE.
Sahara
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Re: Rolling over a 403(b) while still employed?

Post by Sahara »

itsmeagain wrote: Wed May 12, 2021 10:06 am
Sahara wrote: Tue May 11, 2021 8:05 pm If your Vanguard 403b is with Newport Group, I did this in 2019. I had to submit the paperwork to the district TPA, they sent it to Newport Group. Newport Group sent a check to Vanguard for the rollover IRA. So, it went to cash and was out of the market for a bit.

Another interesting element is that I continued to receive dividends for some time. They would come over to the settlement account in the Rollover IRA and I would exchange them into my funds.
Thank you, Sahara, but my 403(b) is directly with Vanguard.
Lucky you! I wonder if there's any chance of an "in kind" transfer?
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itsmeagain
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Re: Rolling over a 403(b) while still employed?

Post by itsmeagain »

Thanks again, Sarah & Rickboglehead!
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