Should I roll over the funds in my 403(b) account to an IRA?
I have $155,000 in a 403(b) account from a job that I retired from in September. I am 66 years old and won't need to withdraw from it until I'm 70 years old. Should I leave it where it is or roll it into an IRA?
Good question. Given the fees still prevalent in the 403(b) world today, it might be better to roll into an IRA. Many 403(b) plans are set up as Tax Sheltered Annuities or Group Annuities. These often come with some form of surrender schedule, and also higher fees. I would suggest having a financial advisor review a statement or do a joint call with you and your current 403(b) provider prior to making any moves. You will want to make sure there is no penalty from the current provider if you roll the account into an IRA. If you do not have an advisor then consider a fee only financial advisor who is considered a fiduciary, and required to act in your best interest. Please let me know if you have follow-up questions.
Good luck to you, and congratulations on your retirement!
Great question. There a few considerations to take into account before making the decision to rollover your 403(b) to an IRA.
1. Review your investment options in the 403(b). Given your recent retiree status, do the options in the plan still support your needs? The investment options in a 403(b) are limited. An IRA has the entire universe of potential investment options available. Depending on your goals, an IRA's investment options may make more sense.
2. Review Fees. As a participant in a 403(b) you pay for your investment expenses, but in most cases, also the cost to administer the plan. Typically, the administrative and recordkeeping costs are spread out across all plan participants as a percentage of assets. This information can usually be found in the summary plan description document, or by calling your administrator. Depending on where you open an IRA these costs could be more than the costs associated with the IRA. If you plan to do-it-yourself, you'll pay only trading costs for the investments and there expenses. If you have a financial advisor, they'll likely charge a percentage of assets to manage it. Ranging from 1-1.5%.
3. Creditor Protection. Your 403(b) may or may not be covered by ERISA, meaning that if you rolled your funds into an IRA your would forego the creditor protection ERISA provides.
Congratulations on your retirement and I hope these considerations provide food for thought in deciding whether to roll over your 403(b).
The decision to keep your money where it is or to roll it elsewhere is an important one, and involves a few considerations.
A good place to start is researching the difference in costs and investment options for each.
Employer sponsored retirement plans like a 403(b) will often have a layer of costs related to the plans maintenance, management, reporting, and compliance, as well as costs related to the investments within the plan. Some 403(b) plans limit the investment option to an annuity product; if your particular situation would be better served with a broader investment menu, possible including stock and bond mutual funds or index funds, this constraint could be another motivator to roll out.
While the costs and fees associated with an IRA will vary by custodian (the bank or brokerage that holds the IRA assets), there are many popular options that have very low costs to simply have the account open. The costs to buy and sell investments within the IRA, and what it may cost to hold those investments over time, will depend both on which custodian and which investment options you choose.
In addition to the above, you may wish to confirm whether your 403(b) is covered by ERISA; ERISA plans carry an additional protection from creditors that may not apply to IRAs in every case.
Thanks for your question. I would definitely recommend that you discuss this with your Certfied Financial Planner who is helping you with your plan to continue staying retired. Most certainly he/she has to be in this conversation as it important that he/she have a complete picture.
403b plans come in all shapes and sizes and quite often with these its hard to say without seeing what you have, if it is good or not. Some custodians are also restrictive on how you can take money out of the plan. However, with that being said, more often than not I do encourage simplicity and do a rollover to consolidate accounts, cut cost, and make sure that your entire portfolio is invested in a manner that is consistant with our retirement income plan.
Richard E. Reyes, CFP, The Financial Quarterback TM