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|Subject: Re: 403(b) to *distinct* IRA?||Date: 8/5/1998 6:41 PM|
|Author: TMFPixy||Number: 4880 of 76395|
Greetings, Dennis, and welcome. You asked:
Hello, all. After lurking on this site for a few weeks and after reading appropriate Foolish tomes, I have decided to yank my IRA funds from the hands of underperforming mutual fund managers into a self-directed IRA account at a discount brokerage. (I am still waiting on pins and needles for the funds to magically appear in my trading account -- I am struggling with unFoolish impatience given the recent short-term market dynamics. Right now I look like the rare, Wise market-timer who actually got the money out at the peak, but I know this illusion will not hold...)
Looking to the future, I have several 403(b) accounts from my life as an itinerant academic that I would like to take control of as well. I have verified my eligibility to roll these funds over into a self-directed IRA and have the forms all ready to go. But I have a question about the destination of those funds. I have read in several places that the money from the 403(b) accounts should go to an IRA account distinct from my other IRA accounts that I started with money that actually passed through my hands. Is this true? Or, should I say, is this good advice? Why should I set up a different account? Is there some IRS technicality I may get caught in later on? Given my retentive nature and the smallish amount of money in the 403(b)s, I would much rather squoosh (a technical term) it all into a single account where I could treat my as yet uncreated portfolio as a continuous whole. Probably a small consideration in the grand scheme of retirement investing, but something to which I would appreciate a response, nevertheless. Thanks in advance for any light you could shed on this topic for me. Later.
To which Bob responded:
drioux writes (in part):
I have read in several places that the money from the 403(b) accounts should go to an IRA account distinct from my other IRA accounts that I started with money that actually passed through my hands. Is this true? Or, should I say, is this good advice?
Usually, yes. Pixy and KAT will know more, but my understanding is that if you commingle 403(b) funds with other IRAs you will (1) lose the ability to place the non-403(b) funds into a Roth IRA; (2) lose the option of rolling the 403(b)funds back into a 403(b) or 401(k), should you later wish to do so; and (3) lose some potential protection from creditors -- I am fairly confident that your creditors cannot reach funds in a 403(b) rollover, but I am not so certain that they cannot reach funds in a traditionally funded IRA. Good luck.
Pixy merely adds he agrees with point (2) and partially agrees with point (3), but disagrees with point (1). Co-mingling conduit IRA money with other IRA money simply disqualifies the conduit IRA money (i.e., the 403b rollover) from ever again being eligible for a rollover to an employer's plan. It does not disqualify it or the rest of the co-mingled IRA from being converted to a Roth IRA. As to creditor protection, much depends on the laws of your state when it comes to IRAs. The fact the IRA may be a result of a rollover from a qualified retirement plan does not necessarily place that money beyond the reach of creditors. That's because it is no longer in a qualified plan and is somewhat under your control. You could cash it in, something you can't do before normal retirement were it still in the plan. Thus, if your state allows creditors to get at IRA assets, the rollover IRA would IMHO be fair game. All the segregation of those monies does is preserve its eligibility for a subsequent rollover to another employer's qualified plan. Otherwise the conduit IRA is just like any other IRA.
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